DELIVERING A FINANCIALLY SUSTAINABLE FUTURE
To respond to the challenges of the current operating environment, this financial plan ensures the ongoing funding of our critical and essential services during the recovery period, while we continue to transform our business to match demand as the aviation industry returns to health.
Whilst the domestic and global response to COVID-19 has helped improve operating conditions over the past 12 months, there is still considerable uncertainty over the timing and pace of the industry’s economic path to recovery – particularly across international aviation sectors. This plan is predicated on the assumption that domestic traffic will return to normal levels during FY2023, whilst restrictions on international travel ease and begin to grow from the end of FY2022.
Whilst we have received government assistance to ease funding pressures, their continued support, the delivery of cost savings, and being able to access the debt market will continue to help us manage the funding impacts of the pandemic. We will continue to work with the Government and keep transforming our business to ensure we continue to support recovery and future growth of aviation traffic in Australia.
This plan prioritises our investment in key strategic programs and will fund $1.2 billion in capital expenditure. The five-year operating projections and performance measures are shown in Table 2.
PRICING
We set our prices in consultation with our customers for core airways services under Long Term Pricing Agreements. Under the provisions of the Competition and Consumer Act 2010 any increase in prices must be communicated to the Australian Competition and Consumer Commission for review.
Under these arrangements, we last increased our prices on 1 July 2015, which allowed us to recover all reasonably-incurred costs relating to the delivery of services (including a return on capital employed). On 1 July 2019 we passed on a price reduction of 2 per cent to customers.
Despite the significant reduction in our revenues, through a combination of government assistance, increasing debt and generating sustainable cost savings, this plan aims to maintain current charges through to FY2024. It is at this point in time, with international traffic assumed to have recovered to more normal levels of activity, that a 1 per cent weighted average price increase has been factored into planning projections.
OPERATING PERFORMANCE
Our customers are continuing to experience significant financial hardship, impacting our revenues and operating performance. Whilst some improvement in operating conditions is projected in line with the current rates of recovery for the domestic aviation market, this plan forecasts losses over the next year whilst restrictions on international travel remain. Further government financial support is likely to be required to fund the delivery of ongoing critical aviation investments and essential programs.
This plan forecasts a gradual industry recovery path over the next two years. Revenues and traffic are projected to rebalance at 90 per cent of pre-COVID levels by FY2024, preceded by periods of below-normal returns until FY2025.
This plan incorporates a number of key programs that will strengthen our financial position and sustainability over the longer term through restructuring activities to build a more flexible and efficient cost base that is better tailored to the service needs of customers. Savings will be realised as we transform the way we deliver our services, including increased automation and digitalisation.
However, in the short term our financial performance will be dependent largely on the continued easing of domestic and international travel restrictions and the rate at which the flying public is able to move closer towards freedom of movement.
The rollout of these key programs will be accelerated during industry recovery and will deliver cost savings of 15 per cent over the planning horizon to help drive financial performance, sustainability and foster industry growth.
TABLE 2: OPERATING PROJECTIONS AND PERFORMANCE MEASURES
| Description | FY2021 Forecast ($ million) | FY2022 Plan ($ million) | FY2023 Plan ($ million) | FY2024 Plan ($ million) | FY2025 Plan ($ million) |
|---|---|---|---|---|---|
| Domestic Airways Revenue* | 173.3 | 427.4 | 515.8 | 551.6 | 573.1 |
| International Airways Revenues | 156.4 | 219.4 | 384.7 | 479.0 | 488.5 |
| Airways Revenue | 329.7 | 646.8 | 900.5 | 1,030.5 | 1,061.7 |
| Government Grant | 581.8 | 400.0 | 150.0 | - | - |
| Other Revenue | 20.8 | 21.0 | 21.1 | 21.2 | 21.3 |
| Total Revenue | 932.3 | 1,067.7 | 1,071.5 | 1,051.7 | 1,082.9 |
| Staff Costs | 654.6 | 744.2 | 666.7 | 606.0 | 570.2 |
| Supplier Costs | 232.6 | 182.5 | 220.3 | 250.4 | 280.8 |
| Depreciation | 133.5 | 141.1 | 146.7 | 161.2 | 174.2 |
| Total Expenses Before Interest and Tax | 1,020.7 | 1,067.8 | 1,033.8 | 1,017.6 | 1,025.2 |
| Earnings Before Interest & Tax (EBIT) | (88.0) | (0.0) | 37.7 | 34.1 | 57.7 |
| Net Profit After Tax | (75.0) | (18.5) | 7.3 | 4.4 | 20.1 |
| Performance | FY2021 Forecast | FY2022 Plan | FY2023 Plan | FY2024 Plan | FY2025 Plan |
|---|---|---|---|---|---|
| EBIT/Revenue | -9.4% | -0.3% | 3.5% | 3.2% | 5.3% |
| Return on Assets | -4.7% | -0.1% | 1.7% | 1.5% | 2.4% |
| Return on Equity after tax | -16.3% | -4.5% | 1.3% | 0.6% | 2.8% |
| Gearing | 42.1% | 72.6% | 59.9% | 61.8% | 61.4% |
| Returns | |||||
| Dividends | - | - | - | - | # |
*Domestic Airways Revenue includes additional Government funding resulting from the Government’s decision to waive 50% of Airservices charges for selected domestic operations.
#Dividends to resume depending on industry recovery
CAPITAL EXPENDITURE
This plan invests $1.2 billion in capital expenditure over the next 5 years. Our previous investment plan has been reprioritised to allow for the continued delivery of key strategic and enabling programs while pausing some activities, which are being reactivated as demand returns.
TABLE 3: CAPITAL INVESTMENT PROJECTIONS
| Program | FY2021 Forecast ($ million) | FY2022 Plan ($ million) | FY2023 Plan ($ million) | FY2024 Plan ($ million) | FY2025 Plan ($ million) | Total 5 Year ($ million) |
|---|---|---|---|---|---|---|
| Strategic | 150.5 | 180.1 | 159.8 | 121.6 | 62.6 | 674.6 |
| Sustainment | 19.8 | 56.0 | 79.6 | 111.8 | 153.9 | 421.1 |
| New and Enhanced Services | 4.2 | 20.6 | 8.8 | 23.1 | 22.9 | 79.6 |
| Total Program | 174.5 | 256.7 | 248.2 | 256.6 | 239.4 | 1,175.4 |
The OneSKY Program, which will replace our current air traffic management system and modernise our air traffic services centres, is still central to this plan and is our key investment priority. It accounts for 61 per cent of the total 5 year spend. This plan also funds work required to modernise our data and communications network infrastructure and continues to support our customers through investment in modern technologies such as digital aerodromes, space-based capabilities to deliver safer and enhanced services, reduce significant future capital expenditure, and deliver productivity benefits.
RETURNS, DIVIDENDS AND GEARING
The five-year returns, dividends and gearing projections have been heavily impacted by the COVID-19 industry downturn and are forecast below-normal target levels (Table 2). Losses are forecast for the next year, with profitability forecast to return in FY2023 in line with improved levels of revenue and delivery of our savings plan.
Throughout the pandemic, operating cashflows have been supported by government funding assistance. Gearing is planned to remain within acceptable levels over the planning period based on ongoing government support in the future. Dividend payments have been reduced while profits remain low and will continue to be reviewed in light of any changes in operating conditions.