Welcome to the first 1/2 financial year 2023 investor and analyst briefing. My name is Filip Kidon, and I am the head of investor relations for the Qantas Group. I'd like to begin today by acknowledging the traditional owners of the land on which we meet today, the Gadigal people of the Eora Nation, and pay our respects to elders past, present, and emerging. I'd like to now hand over to Alan Joyce, our CEO, and Vanessa Hudson, our CFO, to present the results today.
Thanks, Filip. Welcome everybody. Can I also start off by acknowledging the traditional owners of the land on which we meet, the Gadigal people of the Eora Nation, and pay my respects to elders past, present, and emerging. Can I say we're actually really proud of the fact that now on all of our aircraft arriving into Australia, we do a welcome to country, and it's amazing the reaction that that's gotten from the Indigenous community, but also from visitors.
Had some visitors over the weekend that came from the U.S. that thought it was pretty special. Well done to everybody that keeps that going. I am joined by the Group CFO, Vanessa, who's gonna help me with all the difficult financial questions, which usually there's a lot of them.
We are joined by the GMC members who are also gonna help with particular questions about different parts of the business. In the front row facing me, I'll do them in the order in which I see them, so I don't forget anybody. There's Andrew McGinnes, who's Head of Corporate Affairs and Government Affairs. Rob Marcolina, who's Head of People, Strategy, and IT and Transformation.
Then we have Andrew Parker, who is our Chief Sustainability Officer, a new role that we've created in the last few years that's made immense progress and hopefully we'll get some questions on that, and we'll be able to cover it. One of the newest members of the team, Marcus Svensson, who came from a lot of different areas within the group and the company and is now our Chief Customer Officer.
Marcus starts that job at a great time, launching new seats and new lounges. I think Stephanie had it tough beforehand, when we were just cutting back on all expenditure. We're now throwing money at him. I shouldn't say that, should I? We've got John Gissing, who's head of QantasLink Safety, Security, all of our ancillary airline businesses, which do a lot of good work, particularly in the fly in, fly out sector.
Andrew David, who's in charge of Qantas International and Domestic. We have Olivia Wirth, who's the CEO of Qantas Loyalty. She's going to talk a little bit. Hopefully, we'll have a few questions about the amazing progress we're making in Loyalty and the record results we have there. With Stephanieanie Tully, who's the newly appointed CEO of Jetstar.
Again, Stef worked in various different areas within the group and is now running our low-cost division. There's a few exciting things I think that we have in Jetstar. Hopefully, we'll also get some questions on. And then we have Andrew Finch, who's in charge of the Office of the CEO and our General Counsel. We've plenty of people to answer questions.
The introductions get longer than the speech, I think, but we'll get into it and then cover it off for our shareholders, the results for this year. This morning we announced a record first 1/2 for 2023, with an underlying profit before tax of just over AUD 1.4 billion. That compared to a substantial AUD 1.3 billion loss for the same period in the previous year.
We've had a $2.7 billion turnaround in the Group in terms of profitability. Amazing rapid turnaround thanks to the effort of all of our people and unprecedented demand in the marketplace. The statutory profit after tax was $1 billion, with earnings per share of $0.54. These results represent a record 1/2 year for Qantas Domestic, Qantas International, and Qantas Loyalty, and a strong performance by the Jetstar Group. Our portfolio of businesses has never been stronger.
Net debt finished the 1/2 at $2.4 billion, below the bottom of our target range. All of our segments have performed well, and further detail is in the documents that we've released today. There are some broad drivers of our financial performance that are worth signaling out. The first is travel demand and spend, which remains robust, particularly for leisure.
While interest rates and inflation are impacting spending in some sectors, we're yet to see any of that impacting our bookings. In fact, our research, supported by external surveys, shows that travel is one area that people continue to prioritize. We're seeing this in our weekly revenue intakes, which continue to track above pre-COVID levels.
That flows into the second factor, which is the imbalance between strong demand and the supply as the industry restores capacity, particularly in international markets. Restoring our capacity has been slowed by ongoing industry challenges, including delayed fleet deliveries. We get 3 brand new 787s in the next few months, which are 2 years late. There are supply chain dislocations, which are still continuing, and we're finding parts for some aircraft fairly hard to get.
Labor availability. While we don't have an issue with pilots, we're recruiting a significant amount of cabin crew and engineers, particularly engineers we're ramping up on. Training pipelines. We've had unprecedented training covering the backlog of re-endorsing pilot staff being driving buses for 2 years, also the massive recruitment that we've been doing.
This imbalance has resulted in yields to be materially higher than pre-COVID levels. They are offsetting fuel prices, which are 65% higher than pre-COVID levels this 1/2. While we expect these challenges to ease and for fares also to moderate, our international capacity is not expected to return to pre-COVID levels till financial year 2025. This is still ahead of the broader international market.
The last driver of earnings is the AUD 1 billion in restructuring benefits that we had implemented over the last 3 years. This is flowing through our results. Our 3-year recovery plan is largely completed. This restructuring was about making sure we survived the pandemic and bounce back quickly, which is exactly what has occurred and it's worked as we had planned.
That said, given the industry challenges, there are some temporary costs that we have in financial year 23. We've kept more spare aircraft in reserve. We rostered more crew to give us operations an extra buffer and deliver reliability that the customers expected. This has worked. With Qantas now the most on time of the major domestic airlines for 5 months in a row. We're currently leading for the sixth month in a row.
The estimated impact of these temporary costs is AUD 200 million this financial year. We do expect this will unwind in financial year 2024. Our people have been absolutely key to achieving our operation and financial recovery. They've shown incredible resilience and dedication, especially when our challenges were at their peaks in the middle of last year.
Our return to profit means we can share those benefits with them, and around 20,000 non-executive staff across the group are eligible for shares and cash bonuses valued at up to AUD 11,500 at today's share price. We've also announced an improvement in our wages policies in the 1/2, revising annual wage increases from 2% to 3%. Today we've added another AUD 500 in staff credit and other travel benefits as an extra way to say thank you.
We are making good progress on open enterprise agreements. In recent months, we finalized or reach in principle agreement with many of our key work groups. By the end of March, we expect to have reached agreement with more than 3-1/4s of all EBITDA-covered employees. Our customers are another group that have stuck with us, even when we were a long way from delivering the service that they expected.
Thankfully, most of these issues have been fixed, the return to profit also means we can make some important investments in their experience. There's a steady stream of short and long-term projects happening across the group, all with the simple aim of making people's journey a lot better.
We're opening 5 new and upgraded lounges this calendar year. This week we announced $100 million for several more, including a flagship first lounge at London Heathrow to be opened in time for the first Project Sunrise direct flights into Australia. We're continuing to invest in our loyalty program for members. This week we announced an extension of our program offering 50% more classic reward seats on international routes through to December 2023.
With membership grown by over 1 million over the last year, the program continues to go from strength to strength, and we'll have further announcements to increase member value in the coming months. Our financial framework has helped guide our recovery and our capital priorities. With net debt substantially below our target levels, today we're announcing a number of allocation decisions.
We have a further On-Market buyback of up to $500 million, taking the total announcement of financial year 2023 up to $900 million. We've allocated $300 million to purchasing shares for our employee retention and reward schemes, which we were going to issue new shares for, which is on track to invest in August this year.
We're increasing the financial year 2023 capital guidance to between $2.6 billion and $2.7 billion, as we rephase existing commitments with Airbus. We're providing initial capital guidance of $3 billion to $3.2 billion for financial year 2024. That includes aircraft deliveries from our existing order, as well as new aircraft announced earlier today. Our investment in our fleet is accelerating, and we expect an average of one new aircraft arriving every 3 weeks over the coming years.
That's an amazing statistic. When you think of the cost and the investment and the renewal and the benefits this gives us, it's quite substantial. Every new aircraft that arrives brings us closer also to achieving our emission targets reductions with up to 25% less fuel burn compared to previous technology. Today, we're also announcing an update to our financial year 2024 targets. This better reflects the expected performance of our international business.
The move to an EBITDA-based margin target brings the Group International in line with other segments. At the case of Qantas International, it represents a significant upgrade to pre-COVID ROIC targets. For Jetstar Domestic, we have also confirmed that we see an industry-leading low-cost carrier performance of a 15% EBITDA margin target for financial year 2024.
We previously said that LCCs are most exposed to higher fuel prices, and if fuel prices were to reduce to long-term average, we still see a pathway to the 22% margin target we had before COVID. Importantly, these targets were first announced at our investor day in 2019, and we have maintained focus on them through recovery, and it's great we're able to recommit to them in 2024.
Their delivery will be underpinned by unwinding of the transitory cause and the inefficiencies that I mentioned that are present in financial year 2023. Turning to our outlook. We remain positive about the future. As we head into 2023, the Group will maintain a strong focus of providing value in travel. Across the calendar year, we expect the Jetstar Group to offer more than 10 million fares under AUD 100.
For those that haven't seen it, there is AUD 39 airfares available on the Jetstar website to places like the Gold Coast, Melbourne, Sydney. There are AUD 200 airfares to Honolulu, to Ho Chi Minh City and to Bali and to Phuket. Get on your phone and book them as soon as possible. Qantas Domestic will sell 2 million airfares under AUD 200.
There are AUD 99 airfares on sale today as part of that 1 million seats. An amazing 5 million classic reward seats are available on Qantas Loyalty, and we release the lot of the seats at 11:00 A.M. today. 11:00 A.M. tomorrow, sorry. Got the timing wrong. 11:00 A.M. tomorrow, be on the website ready to do them.
Our airline passenger segments continue to see good demand, with revenue intakes maintaining significantly above Pre-COVID levels. We expect capacity, including our own, to restore in the second 1/2 and for RASK to moderate. The return of international capacity will also moderate freight yields. We believe the trend on domestic E-commerce are structural and here to stay. As at today's prices, we expect our fuel bill for the year to be now AUD 4.8 billion, approximately AUD 200 million lower than previous guidance provided.
Our loyalty business has had a very strong first 1/2. It is expected to continue its momentum into the second 1/2, reaching the upper end of its AUD 425 Million-AUD 450 million underlying EBITDA guidance for financial year 2023. Further details on the outlook, including our capacity forecast, can be found in the investor presentations.
In conclusion, it's been a long and frankly difficult journey to get here today. Thanks to our people, our customers, and your shareholders, we're here. Our high service levels are back. Capacity is recovering. We're investing for the future and once again Re-Returning capital to our shareholders. There's clearly a lot to be excited about, and we look forward to updating you on our progress. Thank you. We'll now open it to your questions. Do we have any questions online? I don't think we have any in the room so far. We have a few online.
Your first question comes from Jacob Cakarnis with Jarden Australia. Please go ahead.
I should say before we go, Jake, sorry to interrupt, but given the amount of questions we have online, we're trying to limit it to one question per person, so we can get through it, and then we'll cycle back around if we have time. Over to you, Jake.
Very efficient, Alan. Thank you. Thanks for taking the question. Just wanna focus on the group international EBITDA margin target of 8% you've put out for FY 2024. You've also spoken about a softening as capacity recovers across the divisions, particularly in RASK growth. Can you just comment about a sustainable level of capacity? Is that 8% EBITDA margin in 2024 gonna be sustained as you get back to 100% capacity moving forward, please?
Andrew, do you want that as well?
When we put targets out, we have a track record and a history of delivering on them. I can assure you, we will deliver on that 8%. It's underpinned by a couple of things. Performance of freight. Alan mentioned we see freight yields moderating as capacity comes back. What we have seen through the 3 years of the pandemic is a move to online shopping. We've seen significant growth in e-commerce. That's here to stay.
We have a very strong position domestically with freight as well. We're confident that while our yields are moderating, they will remain above the FY19 levels. Similarly, with our international business of the AUD 1 billion of transformation, 90% of that is in Qantas International and Domestic, and we're confident that will flow through as we get aircraft utilization back to 100%.
We also have initiatives underway to offset inflationary pressures. That will also flow through in the 2024 years. We're very confident in that target of 8%.
I might add as well, Jake, all of those factors that Andrew said give us confidence in that 8%. We do believe that going forward, we also have a number of other significant changes that will help maintain those targets.
We have Project Sunrise taking place from the end of 25 onwards. We have the XL aircraft arriving into our fleet, which allows us to operate significant amount of international routes from Australia that we couldn't have operated before with wide bodies economically. They are a lot more efficient aircraft going forward.
When we set the 24 targets, we're talking about them being step change targets for the future. The margin that we're getting on international this year is obviously higher, the return on invested capital is higher.
We do think it moderates to that and with the changes that we think are unique and they're value proposition nobody else is offering, those are the numbers that should be maintained going forward. Next question.
Next question comes from Andre Fromyhr with UBS. Please go ahead.
Yes, hello, good morning. Staying on the FY24 targets, am I right in understanding the main changes that you've processed today in those targets is the change in the International fleet capital base and the assumption of a different fuel price? Is there something else that's been updated, say, with agreement with the Board on what those targets look like? I mean, 'cause we're 4 months out from the start of FY24. Should we now be thinking about that almost like guidance at this point?
These are targets. We don't give long range guidance, we have had these out as targets, as Alan said, since FY19. We are committed to them. The businesses and segments are absolutely driving towards these targets.
When you reflect on what has changed, I think, the first one is that we did commit to coming back on the Qantas International targets as we could see that there was gonna be better performance than the target, which was ROIC at 10%. We're going to be delivering higher than that. The outlook page in the investor pack demonstrates what that step change is.
There are assumptions that sit behind that, I think that, as Andrew said, that with the transformation activity that we've been doing, and also particularly the route structure that we've got, with new markets and more Point-To-Point traffic, that customers are really valuing at the moment, we're very confident in that target and also the underlying performance on freight.
Qantas domestic maintained at 18%, as we mentioned in the summary, that Jetstar is still targeting leading low-cost carrier margins, which at these levels of fuel is 15%. If you add that all up, and with the upgrade of international, the contribution from these reset targets is actually higher than what we said with the targets back in August.
We feel very confident, again, as the structural change in our cash flow is going to be underpinned by this performance.
Next question.
Matthew Ryan from Barrenjoey. Please go ahead.
Hey, Mathew.
Hi, Alan. Hi, Vanessa. Just had a question on the debt levels. Obviously, your gearing's below where your target gearing range sits at the moment. Just hoping if you could step through what you're thinking about when, I guess, you're looking at distributions.
Obviously, you've had an issue with probably wanting to distribute more than what you could. If you could just comment on, I guess, how we should expect for that gearing to sort of move over the next few years as you sort of move into a probably a higher investment phase.
We are guided by our financial framework, and that is always a Forward-Looking basis in terms of how the business is performing. What I think you can assume is that this financial year, FY23, will have the lowest levels of net debt.
You should expect that as we invest now going forward into the business that net debt level will return to very similar levels at a minimum of what it was pre-COVID, which is a lot higher than what it is today. Our policy and our practice around our financial framework with regard to the decisions that we make every 1/2 with our board on distributions has not changed. We will maintain a position where we target the bottom of that net debt range.
We have indicated that we will be below that come 30th of June. We think that that's appropriate given the level of credits that we are still carrying forward, and we're working very hard to ensure that our customers can access them and burn them before December this year. What you should expect is that our net debt levels with that investment will grow.
That's because the contribution and the earnings from the business from that investment will also grow. There is a commitment that we have to you as investors that we will act in accordance with that financial framework, and we'll strike the right balance between investing in the business and distributing to shareholders over the cycle.
Good answer. Next question.
Anthony Longo with JP Morgan.
Hey, Alan.
Please go ahead.
Hey, Anthony.
G'day, Alan. G'day, Vanessa and team. Firstly, congratulations on the result.
Thank you.
Quick one from me. Thank you. No worries. A quick one from me. Just wanted to get a sense of your confidence in the revenue outlook going forward, just in the context of, you know, what you have delivered in this 1/2, which has been fantastic.
Is it as good as it gets here? Then if you can perhaps talk to the interplay between what you're expecting on capacity increases and RASK to do I guess, offset some of that, particularly in the context of the moderation that you're anticipating.
What we might do, I might get Andrew David and then Stephanie to talk about what we're seeing in each of the businesses. Maybe Liv to talk a little bit about what we're seeing in loyalty, which is a good view of the economy and some of the research that Loyalty has done, if we can. Vanessa could do a summary of where we are overall. Maybe, Andrew, you go first.
Both Alan and Vanessa have mentioned stats in terms of intent to travel. I'll leave Liv to go through that in a little bit more detail. What we're seeing is reflected in our forward bookings. We're seeing forward bookings consistently up sort of 110%-120% against pre-COVID.
What we're seeing domestically is not only premium leisure growth, but we're also seeing the return of government, mining, construction, manufacturing, and SME. In the rest of the corporate market, it's returning in line with our expectations. Because of that demand, we are 1/4 four, if you look, we are looking to get back to 100% of our capacity.
If I take a market like Sydney, Melbourne, we're adding 40 additional flights a week across that 1/4 four period, and some peak weeks we're back to 50. We're back to 100% of our pre-COVID capacity in the domestic market. Our share across the 2 brands has grown since FY 19, so we're now 66%-67% of the market, and we continue to enjoy our profit share much higher than 80%.
Very confident in our position domestically. A similar story internationally. The demand has been very, very high for leisure in particular. 60% of our premium cabin is leisure travel. Our reconfiguration of our 380 means we've got more premium seats, and the 787s, in comparison to the 747, also have a higher percentage of premium seats.
The five new markets we've gone into are all performing very, very well, as are all the other markets we've gone back into. Our capacity is coming gradually over 2023, 2024 and 2025. We are ahead of the rest of the market, and we don't expect the market in total to get back to 100% of capacity in and out of Australia until FY 2025.
As Alan mentioned, we then start taking delivery of 350s, and the 321s and 220s will also open up opportunities for us in the international market. I've already made reference to the freight revenue position. We are very confident across all 3 businesses.
Stephanie?
Thanks. I won't repeat everything Andrew said, but it's worth saying that intention to travel data plays out in the price sensitive segment, which is really important. When we serve our customers, we can see Jetstar customers have the highest level of intention to travel they've had over the pandemic just now. The intention to travel for price sensitive customers remains really high.
Our RASK is strong, both domestically and international. You know, similar to Andrew, we're seeing intakes 120% of what they were Pre-COVID, so very strong. Whilst in the second 1/2, as Alan mentioned, you do see some normalization, we also have a lot of our temporary costs starting to be removed from the business, so it's not as good as it gets, is the answer to that.
For international, it's worth pointing out for Jetstar, just Bali is a great example of what we're seeing in the market, where we grow our market share quicker than the market has. Denpasar for the first 1/2, you'll see 75% of the market's returned. Jetstar's returned 100% of its capacity, and in doing that, we've shifted 15% of market share. Some of that sticks, so you're making sustainable rebound decisions and recovery that are good in the longer term as well. Olivia?
Thanks, Stephanie. I'll cover 2 aspects. Firstly, just out briefly around what we're seeing from the research. As both Andrew and Stephanie have mentioned, intention to travel, both domestic and international, and both from premium customers and Lower-End customers is really strong. It's stronger than pre-COVID, and we're seeing that obviously come through in our forward bookings.
When you take a step back and have a look at where customers are actually spending, we are seeing a disproportionate amount being spent on airfares and travel and entertainment in general. We see that in our current data, but we also see it in our intention to spend. We've talked to our members, seen where they spend, and it is intention to spend on travel remains high.
We also look at the membership base of the Frequent Flyer program. We also have a higher proportion of medium to high income members. What that means is that their discretionary income is obviously higher. It also, they're more likely to spend on travel and entertainment. All those things combined, we see flow through for all our businesses, including Loyalty.
You would've seen in the 1/2, spend on credit cards. We've got 35% of the spend in Australian market is on a Qantas points earning credit card. We get a fairly good view around spend, and that spend's back to 110% of Pre-COVID. We're also seeing increased number of acquisition of cards.
When you add all that together from a loyalty perspective, revenue continues to be strong, and we do expect that to continue through the second 1/2. Thanks, Alan.
Adding all of that together with the yield moderation that we are seeing, with the capacity coming on, fares are going to normalize, but we're also seeing some moderation in fuel. There is no evidence to suggest that the cycling of our profit across both 1/2 doesn't continue to exist as it has in the past as well.
The one thing though is important to emphasize is that as we head into FY24, this year we are carrying a lot of transitionary costs. We flagged that in the outlook statement that we valued that at AUD 400 million, and that will reverse. Also our CASK and our cost position is gonna continue to improve as capacity comes back.
Across the flying businesses, that is a material number as well. we've restarted and continue to do as we've always done, identify transformation to offset the normal costs that would flow through our business, including CPI. I think that what we are seeing is that that's underpinning what we expect to be the performance in FY 2024.
Thanks, Vanessa. I'll just add one other thing to that, is that when you look at our confidence levels about when we look forward at those targets in 2024, what we are seeing domestically is that Qantas and Jetstar have a better margin than our competitors with recent information that was outlined. We do believe that the strategic advantages we had before COVID are not only still here, they've probably been enhanced.
That gives us. Those targets were set before COVID, so that's why we have confidence on domestic. Then on international, we clearly see a step change on international, with the freight changes that Andrew said. We wouldn't be out today essentially changing the targets upwards if we didn't have confidence that that was real, and that's what we are seeing.
We think with this capacity taking a good few years with all the logjams that we've talked about a lot today, to fully recover back to pre-COVID levels, means that the environment that we're in at the moment, where higher demand and supply will certainly continue internationally for the next few years. We are seeing no indication on the general economy, as Liv pointed out, and our research shows that people are prioritizing travel, over other expenditure, which gives us confidence in that outlook going forward. Next question.
Niraj Shah with Goldman Sachs, please go ahead.
Good afternoon, all. Just you guys obviously provided guidance on fiscal 2024 CapEx, so thank you for that, and mentioned continued investment over the medium term. Could you just remind us of sort of how you think about the returns attached to that investment over the medium term?
I think the best guidelines to take are set by the targets that we've outlined for FY 2024. I think that it is a key focus for us and our focus from there will be not just sustaining that, but growing that. If you think about the value that it is coming with the investments, with the new fleet, they have better range and they'll be able to be deployed.
For Qantas, the XLRs will be able to unlock new markets and also drive better utilization, have a more premium seat count. We're expecting that the investment will uplift earnings beyond 2024. That's the same with Jetstar and the investment in the A321LR and the XLRs when they come for the Jetstar fleet as well.
Sunrise is all growth. Sunrise, the first aircraft is delivered at the end of FY 2025 and will be delivered across the next 2 years. I think that that's actually really important to recognize that these investments are gonna step change our profitability and also our cash flow. It's also very important to recognize that with regard to Sunrise. That working capital rebuild from Sunrise will come earlier than the aircraft and the capital flow that we expect, 'cause we'll be selling those flights earlier than the aircraft arrive.
We feel very confident that the business is well-positioned, not just with where our balance sheet is, but we are very confident with the cash flow that we can see in that full year that we'll be able to afford the capital, but we'll also be able to strike the right balance with distributions as well.
Thanks, Vanessa. Next question.
Justin Barratt from CLSA, please go ahead.
Hi, Alan. Hi, Vanessa. Congrats on a good result. just wanted to ask in relation to the or how much of the AUD 400 million transitory costs were incurred in the first 1/2 of 2023? with that, can I guess pre-COVID one 1/2, 2 1/2 splits, or are pre-COVID one 1/2, 2 1/2 splits still relevant for FY 2023?
Vanessa?
The AUD 400 million is broken down predominantly between 2 components. One is the one-off bonus allocation, the Re-reward and recognition, which is roughly around AUD 150 million. There's a AUD 200 million that we have updated the market, which is the cost of carrying higher spares, carrying higher rosters, and also the disruption costs that we incurred in the first 1/2.
What I would say in terms of how that spread across the year, the AUD 200 million we did update in the market when we were there in August, that was a forward cost from that point for the rest of the year.
The accounting for the allocation of the bonuses is relatively even across those 2 periods. I come back to the point I made before, that there is no evidence to suggest that the profitability between the halves and that historical trend that we've seen doesn't exist into the second 1/2.
I will say on those transitory costs, obviously the retention and recovery payment is a payment for this year. Then on top of that, the capacity is the big investment in the on-time performance, and Andrew David and then Stephanie went through the Step-Ups that we're doing from March.
We also have a huge amount of training going on at the moment, which is also in the call space to try and get all of our international capacity up and running. We did say that the 24 targets are underpinned by us taking those transitory costs out. We will see a significant move in our cost base, back to levels that we expect as an ongoing cost level to help support the business going forward.
That, we believe, also will happen at the same time yields will moderate. Again, going back to, is this as good as it gets? Well, you know, while we know the yield environment is high, we know that the cost environment at the moment is high, and those costs will come out, and they will be coming out in 2024 and beyond. Next question.
Paul Butler with Credit Suisse. Please go ahead.
Hi, thanks very much. Could I just ask the change in the target for Jetstar Domestic, you've from 22% down to 15% EBITDA margin. You've flagged fuel. Is there also a component there of the competitive environment? 'Cause I mean, I think in the past you've said that your competitors are more having an impact on the Jetstar Domestic business as opposed to the Qantas Domestic business.
I might start on this and get Stephanie to come in. I think what we're seeing, Paul, is worldwide a change in what the belief is low-cost carriers can actually achieve. If you look at probably the industry standard, now the largest carrier in Europe, Ryanair, great arc success story, by the way. Fantastic airline, in terms of low airfares out there.
Ryanair originally, I think, had margins at around the 22%, and we were aiming and thought they were absolutely achievable to get to that level. What's happened is with higher fuel prices, the price-sensitive end of the market is more sensitive to movements to recover that fuel. Ryanair, I think, are down at around the 15% mark, and that's the projection for them going forward.
We're at 11% for Jetstar in the first 1/2. We have a lot of temporary costs in there at the moment. We do believe as we get them out, and we see the recovery and getting the aircraft that we have on the ground as a buffer back in the air, we can get to those 15% targets. We have also said, Paul, in this, that if fuel prices do come back down to pre-COVID levels, we're still committed to that 22% target as well. I'll get Stephanie to talk about the competition, and how we're seeing that and whether that's having an impact.
Thanks, Paul. We've got a clear path to 15%. We think that's the right target, but as Alan said, if fuel prices do normalize, we think we can do better as well. Ryanair is the only airline saying 15%. Most low-cost carriers are about 8%-10% in their projections, so there's no reason that Jetstar shouldn't be as good as Ryanair.
Competition-wise, domestically, what we know is Jetstar is seen as the low-fares leader. Today, we've sold thousands of fares already since midnight for $39. We know that Australians will turn to Jetstar for low fares. It's great to have more competition in the market. Bonza obviously have started flying. Virgin and Rex are arguably low-cost carriers as well.
We know that Australians will turn to Jetstar for low fares. The dual brand effect in this market, despite the competition, gives us a very strong impact. The reality is, if there's anywhere in the market that feels a value perception and a hit over the next while from economic pressure, it's more likely to be the mid-market, and Jetstar is well-placed to take that spill. The dual brand effect of Qantas and Jetstar sees that playing out. We've got a really clear path for Jetstar to reach that 15% target in FY 24.
I will add, I think that's a good answer, Stephanie. I will add that what we are seeing at the moment is, you know, this is a very competitive market. We have five main jet airlines operating, that I don't think we've seen before. Bonza is keeping away from Jetstar, which is fascinating. There's only one route they're operating on, and recognition is extremely low at the moment. I think only 10% of the population recognize that Bonza is there.
They need to improve on that to be really, any way of a challenge to Jetstar down the line. With Virgin, what we are seeing is that they are certainly focusing on the middle of the market and focusing on the triangle to restore our operation levels to where they needed to be.
We did scale back, particularly on the triangle, which I think you have reported on. As Andrew David already mentioned, in March, we reestablish our position, by adding 40 flights a week on Melbourne-Sydney alone, and some weeks up to 50 flights a week. We are going to recover that share, and we are gonna recover that market, I think that's the right thing to do.
I think that's also helped, I think, Rex, because that's where they're focused. I think Qantas as the national carrier couldn't pull service from Darwin, couldn't pull services from Hobart, and we could scale back on a very high-frequency market like Melbourne-Sydney, but now we have the confidence to reinstate that capacity back into that market.
We think that will certainly help with the Qantas performance and taking costs out, but helps with our overall competitive position in the domestic market. Next question.
Owen Birrell with RBC, please go ahead.
Good afternoon, guys. Just a quick question for me on the net CapEx guidance that you provided for FY 2023 and 2024. Quite a notable step up. Obviously, there's a lot of fleet coming on, but I'm just wondering if you can give us a sense of what the breakdown for those 2 years is between, I guess, what you would sort of call sustaining CapEx versus supporting infrastructure like lounges, and I know the lounge investment that you've announced, but then also what is coming from international and domestic fleet. Just a rough splits, just so that we can get a feel for that.
I think it's fair to say that the majority of the CapEx that you see between 23 and 24 is aircraft delivery. We've got 1 aircraft coming every 3 weeks, and that'll be a split between progress payments and final delivery payments when they come, but also the maintenance CapEx that goes into maintaining the base fleet that we have.
You can assume that the proportion of non-aircraft CapEx is very low. It is traditionally a lower proportion historically that we've had, albeit that we've announced the big investment in lounges that we're making of AUD 100 million, but it will also include investment into non-customer things, including systems and technology and upgrades and maintaining our operations.
That runs at around AUD 200 million-AUD 300 million per annum. Hopefully, that gives you a good breakdown there.
I'll add to that. In the capital expenditure number for this year, we've actually said that we've paid Airbus another AUD 500 million, and we said that's at really good commercial terms. That's for aircraft that are going to arrive in the future. We also within that have been very clear that we've been allocating money, the AUD 500 million to the share buyback, but we've now allocated another
AUD 300 million to the recovery and retention program that we were going to issue new shares for, which is essentially you could look at it as another form of a buyback in some way. We've now maintained our net debt levels below the target range, AUD 500 million below the target range that we've set for ourselves.
The balance sheet is as healthy as it's ever been, and there is plenty of flexibility within that balance sheet. Given the targets going forward, it's very capable. I think as Vanessa calls it, chewing gum and walking at the same time of continuing to do distributions to shareholders and renewing the fleet, and renewing the capital investment in the business that we're planning this year and next year. Next question.
Cameron McDonald from E&P, please go ahead.
Good morning, Alan and team. Afternoon, sorry. Just a question from me on just reviewing actually the commentary you made back in November. You had the sort of AUD 900 million improvement in cash flow, 700 odd in the REO balance and 200 in the deferred CapEx.
Are these changes you're announcing today on top of that AUD 200 million worth of deferred CapEx? Similarly, just in terms of what's happened with the REO balance, can you talk about what, you know, the AUD 6.3, is that actually lower or higher than what you were expecting back in November? How are the forward bookings looking at the moment?
So our REO balance is continuing to build. And you would have seen that between the full year and December that we have seen a further AUD 400 million growth in revenue received in advance from flying. And that is very much a function of the yield environment, but more so from the international capacity rebuild in the second 1/2.
And we are seeing, as stated in the outlook section, that our intakes are continuing to demonstrate the momentum that we saw pre-COVID, which is a function of that strong demand environment, but also a function of the recovery of capacity into the second 1/2.
You will note in the supplementary slides in our investor pack that we have outlined that in our REO balance, there remains an AUD 800 million credit balance, and that specifically relates to COVID credits. We issued 2 million COVID credits during the pandemic, and so we've burned 60% of that, with AUD 800 million remaining.
We are very focused on making sure that our customers have the best access, the best reminders, and the easiest way to redeem those credits so they can use them before they expire in December. Also, the permanent working capital that was built during COVID for the loyalty business, you will see that that has remained a key part of our rebuild. I hope I've answered that question.
When you're talking about deferred CapEx, I'm assuming that there is timing differences. We do have timing differences that move between the first 1/2 and the second 1/2, and we are seeing that mix occur in our CapEx as we go through the second 1/2 of the year.
That is gonna build to that 2.6-2.7 guidance that we've given, including the rephasing of CapEx for the aircraft, which we think is the right thing to do. It de-risks our CapEx going forward. It is not incremental to the plan, we've got significant value from Airbus from doing that.
Next question.
Scott Ryall from Rimor Equity Research. Please go ahead.
Hey, Scott.
Hi. Thank you. I'm gonna take you up on asking about sustainability, Alan. On slide 12, you've got your emissions targets restated, and I understand the fleet efficiency is a big driver of that. My question goes to the sustainable aviation fuel and offsets.
I guess on SAF, I'm wondering, can you hit the 10% target without Australian production? How are you progressing within certification there? On the carbon offsets, you're signaling some changes in the way that you assess offsets, and I was hoping you could give a bit more color about that, please.
Yeah, great question, Scott. I'll get Andrew Parker, our Chief Sustainability Officer, to update you on this, 'cause we've done a huge amount of great work on this with him and his team. Andrew?
Yeah. Thank you for the question. On SAF, the answer is yes. We reverse engineered how to meet that target looking at a series of different scenarios. Whilst domestic production for strategic reasons, which are significant, is our priority.
We know that due to our international ne2rk, where SAF is either underway in terms of production or we have already procured offtake agreements, we can meet the 10% target by 2030 through ports like Los Angeles and San Francisco, where our offsets will kick in from 2025. London Heathrow, we're the only airline in this part of the world who is procuring SAF on a commercial basis as of today. We just extended a new arrangement out of London Heathrow. Clearly, SAF domestically in Australia is critical for us.
70% of our fuel, we uplift domestically out of Australia. We are encouraged that next week, the federal government is hosting its first SAF council meeting, which is something we have pushed for a long time. That, coupled with a lot of state government engagement, and a lot of due diligence we've been doing on potential Australian projects, gives us hope that we will see domestic SAF production in the second 1/2 of this decade.
We know we have to play a lead role in developing a domestic industry. On offsets, we were very supportive of the Chubb Review. We encourage additional assurance and quality, and transparency in carbon offsetting in this market.
As you saw in the pack, we have announced some additional domestic ACU projects, and there will be more of those investments that the Qantas Group will make. Whilst we already have very high leading standards in terms of offset markets we participate in, we welcome additional assurance, and you will see us investing in more domestic projects, including the Reef Credits we announced, and the Charleville project and the new Savannah project in the Northern Territory.
Great. I think we're pretty excited about that meeting next week. After a few years of pushing for a SAF industry to be developed here in Australia, it's great that we're starting to make traction on it. I think for our fuel requirements alone, we think there could be up to 20,000 jobs created in this. This is a phenomenal way of creating High-Paid Australian jobs and for us to be a leader in production of SAF worldwide.
We have the land mass, we have the feedstocks, we should be there on it. I think next week, hopefully we'll make some good progress, and Andrew will be at that meeting. I think we have 2 last questions. 2 questions. We got a second to last question and then the last question.
We have a follow-up question from Jakob Cakarnis with Jarden Australia. Please go ahead.
Yeah, circled around, Jake.
Hi, guys.
You got a second one in.
Yeah. Thanks for the second opportunity. Just one maybe for both of you, Alan and Vanessa. I'm just wondering, heading into FY 2024, how much are you thinking about trading back any potential benefits that you have from lower fuel costs? Just noting that the forward curve is still in backwardation for Brent. How much of that would we see coming back through, do you think, pass through for lower ticket prices or maybe capacity adjustments, please?
Do you want to do that? I think it's fuel coming back, isn't it?
Look, I think that fuel is very much a function of market. Historically, when fuel has been lower, that has been passed back through fares. It is more an indication of demand. I think the way we think about our profitability is that whatever the fuel environment, whatever the demand environment, we have the levers at our disposal through capacity to be able to either recover fuel through fares when they're higher or pass them through when fuel is lower. 'Cause it's more typically reflecting of the demand environment that we're in.
We think about these targets that we've got for 2024 to be through the cycle that we operate in and that's how we've managed the business in the past.
Yeah, I think it's a good answer. I would say I just reinforce that. The way we've seen it domestically is that certainly the carriers do adjust capacity up and down to take account for fuel, as Vanessa said. We don't see that one way or the other, being a big mover. Internationally, we may be in a position if there was a significant drop in fuel, there's still gonna be a shortage of international capacity with the demand there for a period of time.
You will still have the supply-demand constraints and then fuel price. If that's still get there, fuel was to be higher, we think we have the ability to recover that. If it was to be lower, we're still in a very strong demand environment. That may be different from normal circumstances.
We'll see what happens there. Okay, last question.
Samuel Seow with Citi. Please go ahead.
Afternoon, guys. Great set of numbers. Just quickly, I couldn't help notice load factors domestically declined sequentially in the second 1/4, kind of below pre-pandemic. There's 1 essentially flattish capacity. Just wondering if you pick up capacity in the second 1/2, are you seeing your loads pick back up above pre-pandemic or have they stayed below?
Andrew, do you want to do that?
Our load factors are in line with what we were seeing pre-COVID. I come back to the numbers that I stated before, the intent to travel, the forward booking levels that we're seeing, the demand is there in leisure, and it's certainly there in the SME market and in resources, in government, in mining, in construction, and the rest of the corporate market is returning to travel in line with our expectations.
That's why we have confidence to put capacity back into the market to get ourselves back to 100% of pre-COVID levels. We're not seeing any sign in terms of our RASK performance that there is any softening whatsoever. In fact, quite the opposite.
I think there could be some just slight anomalies in various parts of the ne2rk because we're seeing a boom in the fly-in, fly-out market, which those obviously have very high load factors out. The aircraft are usually full, and then on the way back, the aircraft are usually empty. As that is a bigger proportion, that can distort the C factor.
We also are seeing, I think, record C factors on Jetstar in the 90s. That shows you the leisure demand out there. We're definitely not seeing a problem with C factor. I wouldn't look at it as an indicator of an issue with demand.
It's just that demand can be very directional in some of the regional markets we operate in, but the yield does compensate for that, and we do make a profit even if the aircraft is empty on the way back from the resource companies.
I think that's it. We've gone through all of those questions. Can I thank everybody, and I got load of employees here in the room. Thank you for amazing effort on these results and, hopefully you've saw for some of our investors and the analysts, the good reaction that they're seeing in the results and the performance going forward.
Can I thank the management team, Vanessa, to work your way through all of these, the economics of this and getting the annual results ready for today and the entire management team here for helping answering all those difficult questions. Thank you, everybody, and we'll see you again in six months for hopefully an equally good set of numbers. Thank you.