Hi tutor,

I have been assigned to develop a master budget for airline industry and the airline we have chosen is Qantas.

In master budget,I have to make following budgets,

1)Sales Budget

2)Production Budget

3)Component Usage Budget

4)Production Cost Budget

I am confused that how I start to work on master budget.To make sale and component budget,we need units,but airline provide service,so what I should consider as a unit.Hence,what for the component budget?

If you can share some template and way of starting, I would be obliged.

I am attaching excel sheet of data which I have extracted from balance sheet.It may help you to guide me.I am also attaching annual report of 2019.

Kindly,do share the template if you have and way of working so I can start.

I have seen some docs regarding templates of master budgets on airline industry on coursehero but I could not access.

Kindly,help me please.Thank You.

Qantas Annual Report 2019 QANTAS ANNUAL REPORT 2019 Contents Financial Highlights 02 Five-year History 03 Chairman's Report 04 CEO's Report 06 Board of Directors 08 Review of Operations 12 Corporate Governance Statement 21 Directors' Report 23 Financial Report 57 Shareholder Information 119 Financial Calendar and Additional Information 120 01 QANTAS ANNUAL REPORT 2019 Financial Highlights1 $1.30 billion $1.27 billion 55 cents UNDERLYING PROFIT BEFORE TA X STATUTORY PROFIT BEFORE TA X STATUTORY EARNINGS PER SHARE 18.4% $2.81 billion $1.0 billion RETURN ON INVESTED CAPITAL OPERATING CASH FLOW RETURNED TO SHAREHOLDERS through dividends and on-market share buy-backs Qantas Domestic Qantas International $740m $285m Underlying EBIT Underlying EBIT Jetstar Group Qantas Loyalty $370m $374m Underlying EBIT Underlying EBIT 1 \u0007Refer to the Review of Operations section in the Qantas Annual Report 2019 for definitions and explanations of non-statutory measures. Unless otherwise stated, amounts are reported on an underlying basis. 02 QANTAS ANNUAL REPORT 2019 Five-year History1 FINANCIAL PERFORMANCE 2019 2018 2017 2016 2015 (restated) Total Revenue $M 17,966 17,128 16,057 16,200 15,816 Statutory Profit Before Tax $M 1,265 1,352 1,181 1,424 789 Statutory Profit After Tax $M 891 953 853 1,029 560 Underlying Profit Before Tax 2 $M 1,302 1,565 1,401 1,532 975 Underlying Earnings Before Interest and Tax (EBIT) $M 1,487 1,747 1,590 1,751 1,233 Operating Margin % 8.3 10.2 9.9 10.8 7.8 Underlying Earnings per share2 Cents per share 56 63 55 53 32 Basic earnings per share (Statutory Earnings per share) Cents per share 55 54 46 49 25 Return on Invested Capital (ROIC) % 2 % 18.4 21.4 20.1 22.7 16.2 Share Price (30 June Closing) $ 5.40 6.16 5.72 2.82 3.16 Dividend per Share Cents per share 25 17 14 7 - Cash flow from operations $M 2,807 3,413 2,704 2,819 2,048 Net free cash flow 2 $M 1,244 1,442 1,309 1,674 1,104 Net on balance sheet debt $M 3,067 3,054 3,062 2,880 2,594 Net debt (including capitalised operating leases)2 $M 4,710 4,903 5,212 5,646 6,400 Net capital expenditure2 $M 1,611 1,971 1,534 1,032 805 Unit Revenue (RASK)2 c/ASK 8.85 8.40 8.00 8.08 8.21 Total unit cost 2 c/ASK (7.99) (7.37) (7.07) (7.05) (7.54) Ex-fuel unit cost 2,3 c/ASK (5.40) (5.37) (5.03) (4.79) (4.97) 2019 2018 2017 2016 2015 STATISTICS Available Seat Kilometres (ASKs)1 M 151,430 152,428 150,323 148,691 142,287 Revenue Seat Kilometres (RPKs)1 M 127,492 126,814 121,178 119,054 112,543 Passengers carried '000 55,813 55,273 53,659 52,681 49,181 Revenue Seat Factor % 84.2 83.2 80.6 80.1 79.1 314 313 309 303 299 Aircraft in service at end of period 1 \u0007T he 2019 and 2018 (restated) reporting periods are under AASB 15 Revenue from Contracts with Customers. All other periods continue to be reported under previous accounting standards. 2 For non-statutory measures refer to the definitions in the Review of Operations. 3 \u0007T he comparative period has been adjusted for foreign exchange to make it comparable to the current year. 2018 and 2019 reflect the foreign exchange rates as presented in the 2019 Annual Report. The same applies for 2017, 2016, 2015 which have been adjusted for foreign exchange in line with the 2018, 2017 and 2016 Annual Report respectively. 03 QANTAS ANNUAL REPORT 2019 Chairman's Report \"\u0007Our performance shows how resilient the Qantas Group has become. And that's largely due to the strategy behind our portfolio of businesses.\" I'm pleased to report that the Qantas Group delivered another strong result in financial year 2019 and made excellent progress towards our longterm goals. Total profit was lower than last year's record result. This was chiefly due to the headwinds of higher fuel costs and the impact of a lower Australian dollar on our foreign currency expenses. When you consider those factors, our performance shows how resilient the Qantas Group has become. And that's largely due to the strategy behind our portfolio of businesses. In Group Domestic, Qantas and Jetstar continued to lead among corporate, premium leisure and budget travellers. Qantas International faced a significant impact from high fuel costs because of flight distance, but the structural changes to our fleet and network are greatly improving performance. Jetstar airlines in Japan and Vietnam performed well but there were challenges for Jetstar Asia in Singapore with a significant increase in airport charges. 04 Qantas Loyalty achieved another record profit, helped by an increase in earnings from its new insurance and financial services ventures. The strong performances across our portfolio meant we could continue to deliver for our shareholders, customers and our people. Shareholders received $1 billion in capital returns during FY19. In August we announced a further $200 million in dividends and around $400 million in an off-market buyback. At the end of this latest buyback, we'll have bought back almost onethird of our shares since 2015 the most of any company in the ASX All Ordinaries in the past five years. This is delivering significant earnings per share benefits for investors. We continued to invest for our customers, with new aircraft, cabin upgrades, improvements to the Frequent Flyer program and better lounges. QANTAS ANNUAL REPORT 2019 We were also able to keep rewarding our people. The Group is a major employer in Australia, reflected in a total wages bill of more than $4 billion. Recent wage agreements have included 3 per cent annual increases. By the end of 2020 we will have reduced single use plastics by 100 million items and will be well advanced to cutting our waste to landfill by 75 per cent by the end of 2021. We know people are critical to our success, and were pleased to provide 25,000 of our employees with a total of $32 million in staff travel bonuses. This takes the total set aside for nonexecutive bonuses to more than $340 million since 2015. Our ongoing process of Board renewal continued this year. We welcomed Antony Tyler, who brings significant aviation management experience. And we farewelled former Chairman Leigh Clifford. Leigh's strong leadership was key to the turnaround of Qantas. He gave his full support to management during a very challenging period of transformation. And by staying the course, he helped set up Qantas for future success. He leaves with our sincere thanks. Looking longer-term, we remain focused on the four global forces that are shaping our broader operating environment. We are responding to shifting consumer preferences, building our presence in growth markets in Asia, making better use of big data and reducing our environmental footprint. On behalf of the Board, thank you to all members of the Qantas Group family, and to Alan and his management team, for their hard work and dedication, which continues to drive our performance. Richard Goyder AO I have been proud to serve my first year as Chairman, particularly as Qantas enters its 100th year in a strong position and with much to look forward to. 05 QANTAS ANNUAL REPORT 2019 CEO's Report \"\u0007The aviation industry knows it needs to adapt to a carbon constrained future. Acting responsibly on emissions will be key to our long-term success.\" Qantas continued to be one of the best performing airline groups in FY19. This performance is largely due to a long-term strategy of investment and innovation. The restructure of our international network over the past few years is a good example. Perth-London direct has given us a unique advantage in a very competitive market. The shift of our hub back to Singapore gives us a stronger foothold in Asia - and its success can be seen in the need to expand our lounges there. We're able to drive a lot of value through our cornerstone partnerships with Emirates, China Eastern and now American Airlines. We've accelerated the retirement of our 747s an aircraft type that has served us very well in various forms for 50 years and invested in more 787-9s, and we're giving a mid-life upgrade to our fleet of Airbus A380s. 06 We're investing in new fleet at Jetstar as well. The latest variants of the Airbus A321 that start arriving from mid-2020 will allow us to open up new destinations with route economics that help keep downward pressure on fares. Domestically, we've seen our investments in network, customer service training and inflight Wi-Fi strengthen our position in the corporate and premium leisure markets. Our Qantas Business Rewards loyalty program has also helped us grow our share of the small business travel market. We are investing $25 million to strengthen the Frequent Flyer program including adding 1 million reward flights per year across Qantas, Jetstar and our partners. QANTAS ANNUAL REPORT 2019 A further $10 million has been invested in providing discounted fares for people living in remote regional cities on top of a $5 million regional grants program we announced during FY19. And our Pilot Academy will open in the Queensland regional centre of Toowoomba during FY20, with an explicit goal of encouraging more women to pursue a career in aviation. Safety remains core to the Qantas Group's success. Operational safety levels were high in FY19 but we fell short of our workplace safety targets something that we are working hard to address in FY20. The aviation industry knows it needs to adapt to a carbon constrained future. Qantas has signed up to industry-wide targets that will halve net emissions by 2050 based on 2005 levels. Since 2009, we've been working to improve fuel efficiency by an average of 1.5 per cent a year. We're also investing in biofuel research and we operate the world's largest airline carbon offset scheme. Acting responsibly on emissions will be key to our long-term success. As we head towards our 100th year, we're confident in our performance, excited by our future and grateful for the ongoing support of our people and customers. Alan Joyce AC For almost a century, Qantas has succeeded by pushing the boundaries of aviation. We hope to do this again with Project Sunrise which is assessing the commercial and technical feasibility of direct flights from the East Coast of Australia to New York and London. 07 QANTAS ANNUAL REPORT 2019 Board of Directors RICHARD GOYDER AO ALAN JOYCE AC MAXINE BRENNER BCom, FAICD BApplSc (Phy) (Math) (Hons), MSc (MgtSc), MA, FRAeS, FTSE BA, LLB Chief Executive Officer Maxine Brenner was appointed to the Qantas Board in August 2013. Chairman and Independent Non-Executive Director Richard Goyder was appointed to the Qantas Board in November 2017 and as Chairman in October 2018. Alan Joyce was appointed Chief Executive Officer and Managing Director of Qantas in November 2008. He is Chairman of the Nominations Committee. He is a Member of the Safety, Health, Environment and Security Committee. Mr Goyder is Chairman of Woodside Petroleum Limited, the Australian Football League Commission, JDRF Australia, the West Australian Symphony Orchestra, and of the Channel 7 Telethon Trust. He is an honorary member of the Business Council of Australia, and a Fellow of the AICD. Mr Joyce is a Director of the Business Council of Australia, a Member of the International Air Transport Association's Board of Governors, having served as Chairman from 2012 to 2013 and a Director of the Museum of Contemporary Art Australia. He is also a Director of a number of controlled entities of the Qantas Group. Mr Goyder was the Managing Director and CEO of Wesfarmers Limited from July 2005 to November 2017. He also previously held the roles of Finance Director between 2002 and 2004, and Deputy Managing Director and CFO between 2004 and 2005. Mr Goyder was also formerly Chairman of the Australian B20 (the key business advisory body to the World Economic Forum which includes business leaders from all G20 economies). Age: 59 Mr Joyce was the Chief Executive Officer of Jetstar from 2003 to 2008. Before that, he spent over 15 years in leadership positions with Qantas, Ansett and Aer Lingus. At both Qantas and Ansett, he led the network planning, schedules planning and network strategy functions. Mr Joyce spent eight years at Aer Lingus, where he held roles in sales, marketing, IT, network planning, operations research, revenue management and fleet planning. Age: 53 Independent Non-Executive Director She is a Member of the Remuneration Committee and the Audit Committee. Ms Brenner is a Director of Origin Energy Limited, Orica Limited and Growthpoint Properties Australia Limited. She is a Member of the Council of the University of New South Wales. Ms Brenner was formerly a Managing Director of Investment Banking at Investec Bank (Australia) Limited. She has extensive experience in corporate advisory work, particularly in relation to mergers and acquisitions, corporate restructures and general corporate activity. She also practised as a lawyer with Freehill Hollingdale & Page (now Herbert Smith Freehills), where she specialised in corporate work, and spent several years as a lecturer in the Faculty of Law at both the University of NSW and the University of Sydney. Ms Brenner was the Deputy Chairman of the Federal Airports Corporation and a Director of Neverfail Springwater Limited, Bulmer Australia Limited and Treasury Corporation of NSW. She also served as a Member of the Australian Government's Takeovers Panel. Age: 57 08 QANTAS ANNUAL REPORT 2019 Board of Directors continued RICHARD GOODMANSON JACQUELINE HEY BELINDA HUTCHINSON AM BCom, BEc, MBA, MCE BCom, Grad Cert (Mgmt), GAICD BEc, FCA, FAICD Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Richard Goodmanson was appointed to the Qantas Board in June 2008. Jacqueline Hey was appointed to the Qantas Board in August 2013. Belinda Hutchinson was appointed to the Qantas Board in April 2018. He is Chairman of the Safety, Health, Environment and Security Committee and a Member of the Nominations Committee. She is a Member of the Audit Committee. She is a Member of the Audit Committee and the Safety, Health, Environment and Security Committee. Mr Goodmanson was a Director of Rio Tinto plc and Rio Tinto Limited from 2004 to 2016. From 1999 to 2009, he was Executive Vice President and Chief Operating Officer of E.I. du Pont de Nemours and Company. Previous to this role, he was President and Chief Executive Officer of America West Airlines. Mr Goodmanson was also Chief Operations Officer for Frito-Lay Inc, a subsidiary of PepsiCo, and a Principal at McKinsey & Company Inc. He spent 10 years in heavy civil engineering project management, principally in South East Asia. Additionally, Mr Goodmanson was an Economic Advisor to the Governor of Guangdong Province, China from 2003 until 2009. Ms Hey is a Director and Chair-elect of Bendigo and Adelaide Bank Limited and is Chairman of its Technology Committee. She is a Director of AGL Energy Limited and Chairman of its Safety, Sustainability & Corporate Responsibility Committee. She is also a Director of Cricket Australia. Ms Hey was formerly a Director of the Australian Foundation Investment Company Limited from 2013 to 2019, Melbourne Business School from 2013 to 2018, the Special Broadcasting Service from 2011 to 2016 and a Member of the ASIC Directory Advisory Panel from 2013 to 2016. Mr Goodmanson was born in Australia and is a citizen of both Australia and the United States. Between 2004 and 2010, Ms Hey was Managing Director of various Ericsson entities in Australia and New Zealand, the United Kingdom and Ireland, and the Middle East. Her executive career with Ericsson spanned more than 20 years in which she held finance, marketing, sales and leadership roles. Age: 72 Age: 53 Ms Hutchinson is currently Chancellor of the University of Sydney, Chairman of the Future Generation Global Investment Company and Chairman of Thales Australia. She has over 30 years' experience in the financial services sector, working in senior roles at Citibank and Macquarie Group. Ms Hutchinson also has extensive board experience. She was formerly Chairman of QBE Insurance Limited, a Director of Telstra Corporation Limited, Coles Group Limited, Crane Group Limited, Energy Australia Limited, TAB Limited, Snowy Hydro Trading Limited, Sydney Water and AGL Energy. Ms Hutchinson was awarded a Member of the Order of Australia (AM) in 2007 for her service to business through a range of executive roles in the finance sector, and to the development of financial planning and fundraising initiatives for cultural, medical and social welfare organisations. Age: 66 09 QANTAS ANNUAL REPORT 2019 Board of Directors continued MICHAEL L'ESTRANGE AO PAUL RAYNER TODD SAMPSON BA (Syd), MA (Oxon) BEc, MAdmin, FAICD MBA, BA(Hons) Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Michael L'Estrange was appointed to the Qantas Board in April 2016. Paul Rayner was appointed to the Qantas Board in July 2008. Todd Sampson was appointed to the Qantas Board in February 2015. He is a Member of the Remuneration Committee and the Safety, Health, Environment and Security Committee. He is Chairman of the Remuneration Committee and a Member of the Nominations Committee. He is a Member of the Remuneration Committee. Mr L'Estrange was Head of the National Security College at the Australian National University from 2009 to 2015. Prior to this, he was the Secretary of the Department of Foreign Affairs and Trade for almost five years and the Australian High Commissioner to the UK between 2000 and 2005. He served as Secretary to Cabinet and was Head of the Cabinet Policy Unit from 1996 for more than four years and, prior to that, as Executive Director of the Menzies Research Centre. Mr Rayner is Chairman of Treasury Wine Estates Limited, a Director of Boral Limited and Chairman of its Audit Committee, and a Director of the Murdoch Children's Research Institute. He has been a Non-Executive Director of Rio Tinto plc and Rio Tinto Limited and a Director of the University of Notre Dame, Australia since 2014. He was appointed Deputy Chancellor of the University of Notre Dame, Australia in 2017. Mr Rayner was formerly a Director of Centrica plc from 2004 to 2014 and Chairman of its Audit Committee from 2004 to 2013. From 2002 to 2008, Mr Rayner was Finance Director of British American Tobacco plc based in London. Mr Rayner joined Rothmans Holdings Limited in 1991 as its Chief Financial Officer and held other senior executive positions within the Group, including Chief Operating Officer of British American Tobacco Australasia Limited from 1999 to 2001. Mr L'Estrange studied at the University of Sydney and later as a Rhodes Scholar at Oxford University, where he graduated as a Master of Arts with First Class Honours. Previously, Mr Rayner worked for 17 years in various finance and project roles with General Electric, Rank Industries and the Elders IXL Group. Age: 66 Age: 65 10 Mr Sampson was Executive Chairman of the Leo Burnett Group from September 2015 to January 2017, and National Chief Executive Officer from 2008 to 2015. He was also a Director of Fairfax Media Limited from 2014 to 2018. Mr Sampson has over 20 years' experience across marketing, communication, new media and digital transformation. He has held senior leadership and strategy roles for a number of leading communication companies in Australia and overseas, including as Managing Partner for D'Arcy, Strategy Director for The Campaign Palace and Head of Strategy for DDB Needham Worldwide. Age: 49 QANTAS ANNUAL REPORT 2019 Board of Directors continued ANTONY TYLER BARBARA WARD AM BA (Jurisprudence) BEc, MPolEc Independent Non-Executive Director Independent Non-Executive Director Antony Tyler was appointed to the Qantas Board in October 2018. Barbara Ward was appointed to the Qantas Board in June 2008. He is a member of the Safety, Health, Environment and Security Committee. She is Chairman of the Audit Committee, a Member of the Safety, Health, Environment and Security Committee and a Member of the Nominations Committee. Mr Tyler was Director General and Chief Executive of the International Air Transport Association from 2011 to 2016. Prior to this, Mr Tyler spent over 30 years with Cathay Pacific Airways Limited. His career includes several management and executive roles in Hong Kong, the UK, Italy, Japan, Canada, the Philippines and Australia before serving in the role of Chief Executive Officer from 2007 to 2011. He is a Non-Executive Director of Bombardier Inc, BOC Aviation Limited and Trans Maldivian Airways Limited and a Fellow of the Royal Aeronautical Society. Age: 64 Ms Ward is a Director of Caltex Australia Limited and a number of Brookfield Multiplex Group companies. She was formerly a Director of the Commonwealth Bank of Australia, Lion Nathan Limited, Multiplex Limited, Data Advantage Limited, O'Connell Street Associates Pty Ltd, Allco Finance Group Limited, Rail Infrastructure Corporation, Delta Electricity, Ausgrid, Endeavour Energy and Essential Energy. She was also Chairman of Country Energy, NorthPower and HWW Limited, a Board Member of Allens Arthur Robinson, the Sydney Opera House Trust and the Sydney Children's Hospital Foundation, and on the Advisory Board of LEK Consulting. Ms Ward was Chief Executive Officer of Ansett Worldwide Aviation Services from 1993 to 1998. Before that, Ms Ward held various positions at TNT Limited, including General Manager Finance, and also served as a Senior Ministerial Advisor to The Hon PJ Keating. Age: 65 11 QANTAS ANNUAL REPORT 2019 Review of Operations For the year ended 30 June 2019 RESULT HIGHLIGHTS The Qantas Group (the Group) applied AASB 15 Revenue from Contracts with Customers from 1 July 2018. The results for the 12 months ended 30 June 2018 have been restated on the same basis for comparison. The Qantas Group reported an Underlying Profit Before Tax1 (Underlying PBT) of $1,302 million for the 12 months ended 30 June 2019, a decrease of $263 million from the record set in 2017/18. The Group's Statutory Profit Before Tax of $1,265 million was down $87 million from the prior year. The Statutory Profit Before Tax for this financial year included a net $37 million of costs which were not included in Underlying PBT. Items Outside Underlying PBT included costs such as those associated with transformation and discretionary non-executive employee bonuses which were mostly offset by the net gains on the sale of the catering business and the Melbourne Airport Domestic Terminal assets, as well as the reversal of the impairment of an associate, Helloworld Travel Ltd. This compares with $213 million of costs which were not included in Underlying PBT in the prior year. As fuel costs increased by $614 million compared to the prior year, the Group moved rapidly to fully offset this headwind. Capacity discipline in the domestic market supported near record performances from Group Domestic2. The international businesses3 have a more significant exposure to higher fuel costs and operate in highly competitive markets which dampened the ability and speed at which the Group was able to recover these costs. Despite this, the fundamentals of the international businesses remain strong, as revenue increases helped to deliver resilient earnings. Qantas Loyalty delivered a record result, growing and diversifying earnings. It returned to double digit profit growth in the second half, compared to the prior corresponding period. Financial highlights for the 2018/19 financial year are: - Statutory Earnings Per Share was flat on the prior year at 54.6 cents per share, reflecting lower statutory earnings that were offset by the accretive benefit of the on-market share buy-backs - Continued strong Return on Invested Capital (ROIC)4 of 18.4 per cent - Delivery of $452 million in transformation benefits, well in excess of the $400 million annual target - All operating segments delivering ROIC greater than their Weighted Average Cost of Capital (WACC)5 - Continued strong cash flow generation. The balance sheet strengthened further through the year, providing the Group with significant financial flexibility. Net Debt6 at 30 June 2019 was $4.7 billion, below the bottom of the Net Debt target range of $5.2 billion to $6.5 billion. The Group's strong cash flow generation ability delivered $2.8 billion in operating cash flow, lower than the prior year due to lower working capital benefits, the timing of option premium outflows and the recommencement of payment of Australian income taxes. Net capital expenditure7 of $1.6 billion was invested in the business and $1.0 billion of surplus capital returned to shareholders through $363 million of fully franked dividends and $637 million of on-market share buy-backs. Giving consideration to the strength of the balance sheet and the near-term outlook for the business, the Board resolved to distribute a 13 cents per share fully franked final dividend, totalling $204 million and an additional off-market share buy-back of up to 79.7 million shares8. 1. Underlying Profit Before Tax (Underlying PBT) is the primary reporting measure used by the Qantas Group's Chief Operating Decision-Making bodies (CODM), being the Chief Executive Officer, Group Management Committee and the Board of Directors, for the purpose of assessing the performance of the Group. The primary reporting measure of the Qantas Domestic, Qantas International, Jetstar Group and Qantas Loyalty operating segments is Underlying Earnings Before Net Finance Costs and Income Tax Expense (Underlying EBIT). The primary reporting measure of the Corporate segment is Underlying PBT as net finance costs are managed centrally. Refer to the reconciliation of Underlying PBT to Statutory Profit Before Tax on Page 19. 2. Group Domestic includes Qantas Domestic and Jetstar Domestic. 3. International businesses or Group International includes Qantas International, Jetstar International Australian operations, Jetstar New Zealand (including Jetstar Regionals), Jetstar Asia (Singapore) and the contributions from Jetstar Japan and Jetstar Pacific. 4. Return on Invested Capital is calculated as ROIC EBIT for the 12 months ended 30 June 2019, divided by the 12 month Average Invested Capital. ROIC EBIT is calculated by adjusting Underlying EBIT for the period to exclude non-cancellable aircraft operating lease rentals and include Notional Depreciation for these aircraft to account for them as if they are owned aircraft. 5. Weighted Average Cost of Capital is calculated on a pre-tax basis. 6. Net Debt under the Group's Financial Framework includes net on balance sheet debt and off-balance sheet aircraft operating lease liabilities. 7. Net Capital Expenditure is equal to net investing cash flows (excluding aircraft operating lease refinancing) included in the Consolidated Cash Flow Statement of $1,563 million and the impact to Invested Capital of commencing/returning aircraft operating leases of $48 million. 8. Under the buy-back, Qantas Group has the ability to buy back up to 79.7 million of its shares without shareholder approval. The Group will determine the size of the buy-back at the end of the tender period, depending on relevant factors such as the market price of shares at the relevant time, shareholder demand, market conditions, the Group's forecast earnings and capital requirements, and the requirements of its Constitution and applicable laws. For illustrative purposes, assuming a buy-back price of $4.85 (being a 14 per cent discount to an assumed market price of $5.64, as at 19 August 2019), the total spend by the Group would be $387 million. The Group can vary the size of the buy-back, or decide not to buy back any shares, at its discretion. Refer to off-market buy-back tender booklet 2019 for further information. 12 QANTAS ANNUAL REPORT 2019 Review of Operations continued For the year ended 30 June 2019 FINANCIAL FRAMEWORK ALIGNED WITH SHAREHOLDER OBJECTIVES Qantas' Financial Framework aligns our objectives with those of our shareholders. With the aim of generating maintainable Earnings Per Share (EPS) growth over the cycle, which in turn should generate Total Shareholder Return (TSR) in the top quartile of the ASX100 and a basket of global airlines9, the Financial Framework has three clear priorities and associated long-term targets: 1. Maintaining an Optimal Capital Structure Minimise cost of capital by targeting a Net Debt range of $5.2 billion to $6.5 billion 2. ROIC > WACC Through the Cycle Deliver ROIC > 10 per cent10 through the cycle 3. Disciplined Allocation of Capital Grow Invested Capital with disciplined investment, return surplus capital MAINTAINABLE EPS GROWTH OVER THE CYCLE TOTAL SHAREHOLDER RETURN IN THE TOP QUARTILE Maintaining an Optimal Capital Structure The Group's Financial Framework targets an optimal capital structure. This results in a Net Debt target range of $5.2 billion to $6.5 billion, based on the current Average Invested Capital of approximately $8.9 billion, a minimum ROIC of 10 per cent and net debt/ROIC EBITDA range of 2.02.5 times. This capital structure optimises the Group's cost of capital and preserves financial strength with the objective of enhancing longterm shareholder value. At 30 June 2019, Net Debt was $4.7 billion which is below the bottom of the Net Debt target range. The Group's optimal capital structure is consistent with investment grade credit metrics. The Group is rated Baa2 with Moody's Investor Services. ROIC > WACC Through the Cycle Return on Invested Capital (ROIC) of 18.4 per cent was above the Group's value-creating threshold ROIC of 10 per cent for the fifth consecutive year. Disciplined Allocation of Capital The Qantas Group takes a disciplined approach to allocating capital with the aim to grow Invested Capital and return surplus capital to shareholders. Net capital expenditure of $1.6 billion was invested during the financial year $1.0 billion was distributed to shareholders in 2018/19 through $363 million fully franked dividends and on-market share buybacks totalling $637 million. Maintainable EPS Growth Over the Cycle In August 2019, the Board declared a fully franked final dividend of 13 cents per ordinary share totalling $204 million and announced an off-market share buy-back of up to 79.7 million shares8. Statutory Earnings Per Share was 54.6 cents, flat on the prior year as the decrease in Statutory Profit After Tax was offset by a seven per cent reduction in weighted average shares on issue. The Group purchased 113 million shares for $637 million at an average price of $5.63. 9. Target Total Shareholder Return within the top quartile of the ASX100 and the global listed airline peer group as stated on page 43. 10. Target of 10 per cent ROIC allows ROIC to be greater than pre-tax WACC through the cycle. 13 QANTAS ANNUAL REPORT 2019 Review of Operations continued For the year ended 30 June 2019 GROUP PERFORMANCE Underlying PBT for 2018/19 was $1,302 million, 17 per cent lower than the Record Underlying PBT of $1,565 million in 2017/18. Ticketed Passenger Revenue11 increased by $594 million, and combined with the increase in Net Freight Revenue of $76 million to more than offset a $614 million increase in fuel costs. The benefits of transformation and other revenue streams assisted in partially offsetting other cost increases incurred through the year including increases in depreciation charges, foreign exchange impacts on net expenditure and the $90 million increase in the non-cash impact of discount rate changes on provisions. Group Underlying Income Statement Summary Net passenger revenue Net freight revenue Other revenue Revenue and other income Operating expenses (excluding fuel) 12 Fuel Depreciation and amortisation12 Non-cancellable aircraft operating lease rentals Share of net profit of investments accounted for under the equity method Total underlying expenditure Underlying EBIT Net finance costs Underlying PBT Operating Statistics Available Seat Kilometres (ASK)13 Revenue Passenger Kilometres (RPK)14 Passengers carried Revenue Seat Factor15 Operating Margin16 Unit Revenue (RASK)17 Total unit cost18 Ex-fuel unit cost19 M M 000 % % c/ASK c/ASK c/ASK June 2019 $M June 2018 (restated) $M Change $M Change % 15,696 971 1,299 17,966 (10,786) (3,846) (1,605) (264) 14,944 895 1,289 17,128 (10,375) (3,232) (1,517) (272) 752 76 10 838 (411) (614) (88) 8 5 8 1 5 (4) (19) (6) 3 22 15 7 47 (16,479) 1,487 (185) 1,302 (15,381) 1,747 (182) 1,565 (1,098) (260) (3) (263) (7) (15) (2) (17) June 2018 (restated) Change Change % June 2019 151,430 127,492 55,813 84.2 8.3 8.85 (7.99) (5.40) 152,428 126,814 55,273 83.2 10.2 8.40 (7.37) (5.37) (998) 678 540 1.00 (1.9) 0.45 (0.62) (0.03) (0.7) 0.5 1.0 n/a n/a 5.3 (8.4) (0.6) Group capacity (ASK) decreased by 0.7 per cent, while demand (RPK) increased by 0.5 per cent, resulting in a 1.0 percentage point increase in Revenue Seat Factor. Group Unit Revenue increased by 5.3 per cent from the prior year, with an increase20 of 5.7 per cent in the first half and a 4.9 per cent increase21 in the second half. As the year progressed, Unit Revenue in the International businesses improved but softening demand slowed Unit Revenue growth in the domestic market. The Group's Total Unit Cost increased by 8.4 per cent resulting from higher fuel prices, foreign exchange impacts and other costs. TRANSFORMATION The Group maintained its focus on ongoing transformation, delivering $452 million in benefits, which again exceeded the annual target of $400 million. This included net revenue benefits of $149 million from a range of initiatives including the full year benefit of structural changes such as the introduction of the Dreamliner to Qantas International, the Singapore hub restructure and the Perth to London direct service. Non-fuel costs were reduced by $265 million through a combination of technology-based innovations and commercial sourcing benefits. With rising fuel costs and a continued focus on reducing carbon emissions, $38 million in fuel benefits was achieved through a range of fuel efficiency measures including on-board weight reduction and increased utilisation of single engine taxiing. 11. Uplifted passenger revenue included in net passenger revenue. 12. Underlying expenses differ from equivalent statutory expenses due to items excluded from Underlying PBT such as those items identified by Management as not representing the underlying performance of the business. Refer to the reconciliation on page 19. 13. ASK - total number of seats available for passengers, multiplied by the number of kilometres flown. 14. RPK - total number of passengers carried, multiplied by the number of kilometres flown. 15. Revenue Seat Factor - RPKs divided by ASKs. Also known as seat factor, load factor or load. 16. Operating Margin is Group Underlying EBIT divided by Group total revenue. 17. Unit Revenue is calculated as ticketed passenger revenue per ASK. The prior period has been restated to conform with current year presentation. 18. Total Unit Cost is Underlying PBT less ticketed passenger revenue per ASK. The comparative period has been restated to conform with current year presentation. 19. Ex-fuel unit cost is measured as Underlying PBT less ticketed passenger revenue, fuel and share of profit/(loss) of investments accounted for under the equity method, adjusted for the impact of changes in foreign exchange rates and non-cash impact of discount rate changes on provisions per ASK. The comparative period has been restated to conform with current year presentation. 20. Compared to the first half of 2017/18 financial year restated for first time adoption of AASB 15. 21. Compared to the second half of 2017/18 financial year restated for first time adoption of AASB 15. 14 QANTAS ANNUAL REPORT 2019 Review of Operations continued For the year ended 30 June 2019 CASH GENERATION Cash Flow Summary Operating cash flows Investing cash flows (excluding aircraft operating lease refinancing) Net free cash flow Aircraft operating lease refinancing Financing cash flows Cash at beginning of year Effect of foreign exchange on cash Cash at end of year Debt Analysis Net on balance sheet debt22 Capitalised operating lease liabilities23 Net Debt24 Debt/EBITDA25 $M $M times June 2019 $M June 2018 $M Change $M Change % 2,807 (1,563) 1,244 (88) (705) 1,694 12 2,157 3,413 (1,971) 1,442 (230) (1,296) 1,775 3 1,694 (606) 408 (198) 142 591 (81) 9 463 (18) 21 (14) 62 46 (5) >100 27 June 2019 June 2018 Change $M Change % 3,067 1,643 4,710 2.3 3,054 1,849 4,903 2.0 13 (206) (193) 0.3 (11) (4) 15 Operating cash flows for 2018/19 were $2.8 billion, $606 million lower than the record performance in the prior year, reflecting timing differences associated with outflows for the Group's fuel cost hedging program, lower working capital movements and the recommencement of payment of Australian income taxes. Investing cash flows were $1.6 billion excluding aircraft operating lease refinancing. Net capital expenditure of $1.6 billion included investment in replacement fleet such as the final delivery payments for three 787-9 Dreamliners for Qantas International, customer experience initiatives including lounge upgrades, the Jetstar A320/321 Cabin Enhancement Program and Wi-Fi installation on the Qantas Domestic fleet. Qantas generated more than $1.2 billion of net free cash flow in the year, facilitating Net Debt reduction and returns to shareholders. Net financing cash outflows of $705 million included $1,137 million draw down from two new tranches of the corporate debt program, offset by scheduled debt repayments of $744 million, dividends of $363 million and on-market buy-backs totalling $637 million. The second and third tranches of the corporate debt program were secured against 38 mid-life aircraft. The third tranche expanded to a new funding source with an issuance to traditional US Private Placement investors, with a tenor of 12 years. With reduced financial leverage and minimal near-term refinancing risk, the Group has continued to optimise the mix of liquidity with less requirement for short-term liquidity held in cash. The Group used $88 million cash in excess of its short-term requirements to purchase two aircraft out of operating leases. Using the Group's existing cash balance in this way achieved the following benefits: - Reduced gross debt and cost of carry with minimal impact to net debt - Greater fleet and maintenance planning flexibility - Reduced exposure to US dollar lease rentals. The Group enhanced the quality of the unencumbered pool of aircraft by adding three new 787-9s, bringing the total unencumbered aircraft to 51 per cent of the fleet26 with an approximate value of US$3.1 billion27. Qantas continues to retain significant flexibility in its financial position, funding strategies and fleet plan to ensure that it can respond to changes in market conditions and earnings scenarios. At 30 June 2019, the Group's leverage metrics were well within investment grade metrics Baa2 with Debt/EBITDA of 2.3 times. 22. Net on balance sheet debt includes interest-bearing liabilities and the fair value of hedges related to debt reduced by cash and cash equivalents. 23. Capitalised aircraft operating lease liabilities are measured at fair value at the lease commencement date and remeasured over the lease term on a principal and interest basis akin to a finance lease. Residual value of capitalised aircraft operating lease liability denominated in foreign currency is translated at a long-term exchange rate. 24. Net debt includes on balance sheet debt and capitalised aircraft operating lease liabilities under the Group's Financial Framework. 25. Management's estimate based on Moody's methodology. 26. Based on number of aircraft as at 30 June 2019. The Group's fleet totalled 314 aircraft including Jetstar Asia (Singapore) owned fleet and excludes Jetstar Pacific (Vietnam) and Jetstar Japan. 27. Based on AVAC market values. 15 QANTAS ANNUAL REPORT 2019 Review of Operations continued For the year ended 30 June 2019 FLEET The determination of the optimal fleet age for the Qantas Group balances a number of factors and varies by fleet type, including the availability of any new technology, the level of capacity growth required in the markets that it serves, the competitive landscape and whether the investment is earnings accretive. At all times, the Group retains significant flexibility to respond to changes in market conditions and the competitive landscape by deploying a number of strategies including fleet redeployment, refurbishment, renewal and retirement. The Group continued to cross utilise the A330-200 and 737-800 aircraft between Qantas Domestic and Qantas International, and recently the A320-200s released from Jetstar were deployed into QantasLink, optimising capacity to match demand. These aircraft were released through capacity right sizing in the domestic market. At 30 June 2019, the Qantas Group fleet28 totalled 314 aircraft. During 2018/19, the Group acquired three 787-9s (Qantas International), retired three 747-400s (Qantas International) and added one leased A320-200 aircraft to Jetstar Asia (Singapore). Fleet Summary (Number of aircraft) A380 747-400/400ER A330-200/300 737-800 787-9 717-200 Q200/300/400 F100 A320-200 Total Qantas (including QantasLink and Network Aviation) Q300 A320/A321-200 787-8 Total Jetstar Group 737-300/400F 767-300F Total Freight Total Group June 2019 June 2018 12 7 28 75 8 20 45 17 2 214 5 78 11 94 5 1 6 314 12 10 28 75 5 20 45 17 2 214 5 77 11 93 5 1 6 313 SEGMENT PERFORMANCE Segment Performance Summary Qantas Domestic Qantas International Jetstar Group Qantas Loyalty Corporate Unallocated/Eliminations Underlying EBIT Net finance costs Underlying PBT June 2019 $M June 2018 (restated) $M Change $M Change % 740 285 370 374 (174) (108) 1,487 (185) 1,302 765 398 457 345 (195) (23) 1,747 (182) 1,565 (25) (113) (87) 29 21 (85) (260) (3) (263) (3) (28) (19) 8 11 >(100) (15) (2) (17) 28. Includes Qantas Airways, Jetstar Australia and New Zealand, Jetstar Asia (Singapore), Qantas Freight and Network Aviation, and excludes aircraft operated by Jetstar Japan and Jetstar Pacific (Vietnam). 16 QANTAS ANNUAL REPORT 2019 Review of Operations continued For the year ended 30 June 2019 QANTAS DOMESTIC Metrics ASKs Seat factor M % June 2019 June 2018 Change 33,866 77.8 34,385 77.8 (1.5%) 0pts Qantas Domestic reported an Underlying EBIT of $740 million, down three per cent from the record result in 2017/18. Qantas Domestic was able to more than offset fuel cost increases and partially offset foreign exchange impacts on non-fuel costs. Unit Revenue increased by five per cent compared to 2017/18 as market capacity remained in line with demand. Qantas Domestic grew share in both the corporate and Small to Medium Enterprise (SME) markets. During the year, Qantas Domestic also benefited from the ongoing recovery of the resources market with a $47 million growth in revenue from that sector. The dual brand strategy, together with the benefits of transformation and investment in our customers continued to deliver leading margins, with the Operating Margin for Qantas Domestic at 12.1 per cent. Qantas Domestic continued to invest in customer experience delivering: - 15 percentage points customer advocacy29 premium to competitor30 - 83 per cent on-time performance31 - Improved Net Promoter Score (NPS) for in-flight entertainment on Wi-Fi equipped 737s - Expansion of regional resident fares program, removal of change fee for regional resident fares and turboprop fleet refurbishment - Continued investment in domestic lounges. QANTAS INTERNATIONAL Metrics ASKs Seat factor M % June 2019 June 2018 Change 69,571 86.0 69,280 84.2 0.4% 1.8pts Qantas International reported Underlying EBIT of $285 million for 2018/19, down 28 per cent compared to 2017/18. Unit Revenue growth was strong at 6.4 per cent, fully offsetting increased fuel costs. Growth in other revenue streams could not fully recover other cost increases such as foreign exchange impacts on non-fuel costs and the costs of concurrently flying the 747 and 787 aircraft while transitioning the fleet. Earnings momentum built in the second half as competitor capacity reduced. The USA market, in particular, experienced significant competitive pressure. Approval for Anti-Trust Immunity for the American Airlines Joint Business is opening up new opportunities with the announcement of a number of new routes including Brisbane to Chicago and Brisbane to San Francisco. The strategy to build a resilient Qantas International continues with the expansion of the 787-9 Dreamliner fleet to eight aircraft. The success of the Perth to London direct route with network leading NPS, Revenue Seat Factor and Unit Revenue, gives confidence in the strategy to pursue ultra-long haul routes that provide a unique competitive advantage. Combined with the Singapore hub restructure, the London services have seen a significant improvement in financial performance, becoming profitable for the first time in over a decade. Qantas International continued to invest in customer experience delivering: - Investment in a new Singapore First lounge and expansion of the Business lounge to support increased demand from the hub restructure - Commencement of the A380 cabin upgrade. 29. Customer advocacy measured as Net Promoter Score (NPS). Based on Qantas internal reporting. 30. Competitor refers to Virgin Australia. Based on Qantas internal reporting. 31. On time performance (OTP) of Qantas Domestic mainline and regional services measured as departures within 15 minutes of scheduled departure time for FY19. Source: BITRE. 17 QANTAS ANNUAL REPORT 2019 Review of Operations continued For the year ended 30 June 2019 JETSTAR GROUP Metrics ASKs Seat factor M % June 2019 June 2018 Change 47,993 86.1 48,763 85.6 (1.6%) 0.5pts The Jetstar Group achieved record revenue fully offsetting increased fuel costs as Unit Revenue in the domestic market increased by 2.7 per cent and ancillary revenue per passenger increased 12 per cent. Jetstar International also saw strong improvement in Unit Revenue, which increased by 6.0 per cent compared with 2017/18. Even with the record revenue performance, the Jetstar Group was able to maintain its commitment to affordability with almost two-thirds of fares sold for under $100. The Underlying EBIT result of $370 million for the Jetstar Group was impacted by increased fuel costs, foreign exchange impacts on non-fuel costs and a significant increase in airport charges and taxes in Singapore. Associate airlines, Jetstar Japan and Jetstar Pacific (Vietnam), remained profitable despite the considerable headwinds, with our investment in Jetstar Japan delivering a record Australian dollar profit share. Jetstar continued its investment in transformation and customer experience delivering: - Ancillary revenue strength driven by the success of the \"Plus 3kg\" carry on - Cabin Enhancement Program completed, achieving capital efficient expansion with 3 per cent extra seats added32 - Club Jetstar continued growth with more than 340,000 members. QANTAS LOYALTY Metrics QFF members M June 2019 June 2018 12.9 12.3 Change 4.8% Qantas Loyalty reported a record result with Underlying EBIT of $374 million, up 8.4 per cent compared to 2017/18 as it returned to double digit profit growth34 in the second half. Revenue was at a record level as member engagement with the program increased. Points earned from Financial Services products reached record levels, growth in everyday earn segments continued and program points redeemed across airline, hotel and retail awards increased by 12 per cent. 33 During the year Qantas Loyalty announced the biggest overhaul of the Frequent Flyer program in 32 years, adding additional reward seats and launching of a new program tier, Lifetime Platinum and the establishment of the Points Club for its most loyal buyers. The diversification of earnings through the New Business portfolio continued. Revenue from New Businesses increased by 27 per cent. Qantas Insurance achieved 46 per cent growth35 in the Health Insurance market with one of the lowest average premium increases and strong market growth. The Qantas Premier Credit Card portfolio continues to perform well with strong card acquisition trends and double the spend volume compared with the prior year. 32. Compared to the aircraft prior to the cabin enhancement. 33. The financial year 2017/18 Underlying EBIT has been restated for the adoption of AASB 15 to $345 million. Prior to the restatement 2017/18 Underlying EBIT was reported as $372 million. Financial years 2014/15, 2015/16 and 2016/17 have not been restated for AASB 15. 34. Compared to the second half of 2017/18. 35. Based on 12 months to June 2019 growth in net persons insured compared to all Australian private health insurance funds. Source: Qantasib internal analysis and estimates. 18 QANTAS ANNUAL REPORT 2019 Review of Operations continued For the year ended 30 June 2019 RECONCILIATION OF UNDERLYING PBT TO STATUTORY PROFIT BEFORE TAX The Statutory Profit Before Tax of $1,265 million for 2018/19 was $87 million lower than the previous year. Underlying PBT Underlying PBT is the primary reporting measure used by the Qantas Group's Chief Operating Decision-Making bodies (CODM), being the Chief Executive Officer, Group Management Committee and the Board of Directors, for the purpose of assessing the performance of the Group. The primary reporting measure of the Qantas International, Qantas Domestic, Jetstar Group and Qantas Loyalty operating segments is Underlying EBIT. The primary reporting measure of the Corporate segment is Underlying PBT as net finance costs are managed centrally. Reconciliation of Underlying PBT to Statutory Profit Before Tax Underlying PBT 2019 $M 2018 (restated) $M 1,302 1,565 (218) (162) (27) (53) 39 12 141 - Items not included in Underlying PBT - Transformation costs - Discretionary bonuses to non-executive employees - Net gain on disposal of a controlled entity - Net gain on disposal of Airport Terminal assets - Net gain on disposal/reversal of impairment of associate - Other Total items not included in Underlying PBT Statutory Profit Before Income Tax Expense 43 - (15) (10) (37) (213) 1,265 1,352 Items which are identified by Management and reported to the CODM as not representing the underlying performance of the business are not included in Underlying PBT. The determination of these items is made after consideration of their nature and materiality and is applied consistently from period to period. Items not included in Underlying PBT primarily result from revenues or expenses relating to business activities in other reporting periods, transformational/restructuring initiatives, transactions involving investments, impairments of assets and other transactions outside the ordinary course of business. In the 2019 financial year these included: - Transformation costs of $218 million included redundancy and related costs of $65 million, fleet restructuring costs of $107 million (primarily related to costs for the introduction of the 789 Dreamliners and retirement of the 747 fleet) and other upfront costs of $46 million directly incurred to enable the delivery of transformation benefits. Included in fleet restructuring costs are $68 million of non-cash accelerated depreciation and inventory write-downs Discretionary bonuses to non-executive employees of $27 million will be paid to non-executive employees after the employees post - wage freeze collective agreement is voted upon and approved - The net gain on disposal of a controlled entity of $39 million arose from the sale of the Qantas Catering business, which was completed during the year - The net gain on disposal of Airport Terminal assets of $141 million primarily relates to the gain on disposal of Melbourne Domestic Terminal assets - The net gain on disposal/reversal of impairment of associate of $43 million relates to the Group's investment in Helloworld Travel Limited. The Group sold 2 million shares for $5.50 per share in September 2018 and reversed previously recognised impairment. The reversal of the impairment has been recognised as an item outside of Underlying PBT consistent with the treatment of the original impairment. 19 QANTAS ANNUAL REPORT 2019 Review of Operations continued For the year ended 30 June 2019 MATERIAL BUSINESS RISKS The aviation industry is subject to a number of inherent risks. These include, but are not limited to, exposure to changes in economic conditions, changes in government regulations, fuel and foreign exchange volatility and other exogenous events such as aviation incidents, natural disasters, war or an epidemic. Qantas is exposed to a number of specific business risks which may impact the achievement of the Group's strategy and financial prospects. The Group's focus is on continuously improving the controls to manage these risks as the context of these risks typically does not significantly change compared with the previous year. The Qantas Group continues to operate in a domestic and international environment where elevated political risk for the business will be the norm. The increased level of unpredictability makes it imperative that the Group continues to plan for wide ranges of scenarios and risks to ensure its robustness. Competitive intensity: Market capacity growth ahead of underlying demand impacts industry profitability. - Australia's liberal aviation policy settings have attracted offshore competitors to the Australian international aviation market, predominantly state-sponsored airlines. Qantas remains focused on building key strategic airline partnerships with strong global partners and optimising its network. Qantas brings domestic strength and the unrivalled customer offering of Qantas Loyalty. Qantas International continues to build a resilient and sustainable business through transformation. - The Australian domestic aviation market is highly competitive. The Qantas Group's market-leading domestic position and dual brand strategy allow Qantas to effectively mitigate the impact of market changes. This strategy leverages Qantas Domestic (including QantasLink) to serve business and premium leisure customers and Jetstar to serve price-sensitive customers. Qantas Domestic continues to focus on managing its cost base through sustainable transformation initiatives to ensure it remains competitive, while maintaining a revenue premium. Jetstar is working to maintain its lowest seat cost and yield advantage. These priorities result in Qantas Domestic and Jetstar Domestic delivering the highest Underlying EBITs in their respective markets, enabling the Group to retain Underlying EBIT share in excess of capacity share. Fuel and foreign exchange volatility: The Qantas Group is subject to fuel and foreign exchange risks. These risks are an inherent part of the operations of an airline. The Qantas Group manages these risks through a comprehensive hedging program. Fuel price is 100 per cent hedged for the remainder of 2019/20. For 2019/20, the Group's hedging profile is positioned such that 2019/20 fuel costs are expected to be $3.9536 billion with an average 53 per cent participation rate37 to lower fuel prices. Complementing the hedging program, increased focus on forecasting and the operational agility of our aviation operations are supporting the Group to manage the residual uncertainty. Cyber security and data governance: The global cyber and privacy landscape is constantly evolving and at the same time, data governance has become an important function for many organisations including the Qantas Group. Qantas remains focused on embedding cyber security, privacy and data governance into business processes, taking a security and privacy by design approach and creating a cybersafe and privacy orientated culture which builds on an established safety culture. The Group is also enhancing its data governance framework to ensure ethical and commercial data risks are managed in addition to data protection and privacy. Qantas has a defined risk and control framework, aligned with industry standards, which is designed to protect the confidentiality, integrity, availability and privacy of data and to maintain compliance with regulatory requirements. The Qantas Group's cyber and privacy controls operate to reduce the likelihood and severity of cyber security and data privacy related incidents and related impacts. The Group's cyber and data privacy risks are continuously monitored by the Group Cyber and Privacy Committee and are subject to independent assurance including for material third party suppliers. Key business partners and alliances: The Qantas Group has relationships with a number of key business partners. In order to continue to maximise mutual benefit from both a financial and customer proposition perspective, governance structures are in place to track and report performance against common strategic objectives. The Qantas Group continues to proactively build relationships with existing and new industry partners through ongoing dialogue with relevant authorities and stakeholder groups. Climate change: The Qantas Group is subject to short-term and long-term climate-related physical and transition risks. These risks are an inherent part of the operations of an airline and are managed by undertaking scenario analysis, strengthening governance, technology, operational and market-based controls, including proactive consideration of how changing factors (including global climate policies) impact the proximity of climate-related risks. The Qantas Group is responding to increased demand for transparency on identification and management of climate-related risks by aligning its 2018/19 corporate disclosures with the Taskforce on Climate-Related Financial Disclosures (TCFD). These disclosures are available on www.qantas.com/au/en/qantas-group/actingresponsibly/our-planet.html. An overview of the Group Risk Management Framework is contained in the Qantas Group Business Practices Document available on www.qantas.com.au. 36. As at 20 August 2019. 2019/20 assumes forward market rates of Jet Fuel US $74 per barrel and AUD/USD 0.6763. Actual fuel costs for 2019/20 will be impacted by changes in Jet Fuel prices and the AUD/USD. 37. Participation from current market Brent prices down to US $64 per barrel for the remainder of 2019/20. 20 QANTAS ANNUAL REPORT 2019 Corporate Governance Statement For the year ended 30 June 2019 OVERVIEW Corporate governance is core to ensuring the creation, protection and enhancement of shareholder value. The Board maintains, and requires that Qantas Management (Management) maintains, the highest level of corporate ethics. The Board comprises a majority of Independent Non-Executive Directors who, together with the Executive Director, have an appropriate balance of skills, knowledge, experience, independence and diversity to enable the Board as a collective to effectively discharge its responsibilities. The Board has endorsed the ASX Corporate Governance Principles and Recommendations (ASX Principles) 3rd Edition throughout 2018/19 and at the date of this Statement and has considered the 4th Edition ASX Principles following its release in February 2019. Accordingly, Qantas Airways Limited has disclosed its 2019 Corporate Governance Statement in the Corporate Governance section on the Qantas website. As required, Qantas has also lodged its Corporate Governance Statement with the ASX. Following is a summary of the key aspects of the Corporate Governance Statement. THE BOARD LAYS SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT The Board has adopted a formal Charter, which is available in the Corporate Governance section on the Qantas website. The Board is responsible for setting and reviewing the strategic direction of Qantas and monitoring the implementation of that strategy by Management. The CEO is responsible for the day-to-day management of the Qantas Group with all powers, discretions and delegations authorised, from time to time, by the Board. The Company Secretary is accountable directly to the Board, through the Chairman, on all matters to do with the proper functioning of the Board. THE BOARD IS STRUCTURED TO ADD VALUE The Qantas Board currently has 11 Directors. Ten Directors are Independent Non-Executive Directors elected by shareholders. The Qantas CEO, who is an Executive Director, is not regarded as independent. Details of the current Directors, their qualifications, skills, experience and tenure are set out on pages 8 to 11 of the Qantas Annual Report 2019. The Board has four committees: - Audit Committee - Nominations Committee - Remuneration Committee - Safety, Health, Environment and Security Committee. Each of these committees assists the Board with specified responsibilities that are set out in the Committee Charters, as delegated and approved by the Board. Membership of and attendance at 2018/19 Board and Committee meetings is detailed on page 24 of the Qantas Annual Report 2019. THE BOARD PROMOTES ETHICAL AND RESPONSIBLE DECISIONMAKING The Board has established a corporate governance framework, comprising Non-Negotiable Business Principles (Principles) and Group Policies, which forms the foundation for the way in which the Qantas Group undertakes business. The Principles and Group Policies, including the Qantas Group Code of Conduct and Ethics, are detailed in the Qantas Group Business Practices document. This framework is supported by a rigorous Whistleblower Program, which provides a protected disclosure process for all Disclosing Persons. The Qantas Group Employee Share Trading Policy sets out guidelines designed to protect the Qantas Group Directors and its employees from intentionally or unintentionally breaching the law. The Qantas Group Employee Share Trading Policy prohibits employees from dealing in the securities of any Qantas Group listed or unlisted entity while in possession of material non-public information. In addition, certain nominated Qantas employees are also prohibited from entering into any hedging or margin lending arrangement or otherwise granting a charge over the securities of any Qantas Group listed or unlisted entity, where control of any sale process relating to those securities may be lost. 21 QANTAS ANNUAL REPORT 2019 Corporate Governance Statement continued For the year ended 30 June 2019 THE BOARD SAFEGUARDS THE INTEGRITY OF CORPORATE FINANCIAL REPORTING The Board and the Audit Committee closely monitor the independence of the external auditor. Regular reviews occur of the independence safeguards put in place by the external auditor. Qantas rotates the lead external audit partner every five years and imposes restrictions on the employment of personnel previously employed by the external auditor. Qantas last rotated its lead external audit partner during the 2016/17 year. Policies are in place to restrict the type of non-audit services which can be provided by the external auditor and a detailed review of non-audit fees paid to the external auditor is undertaken on a half-yearly basis. At each meeting, the Audit Committee meets privately with Executive Management without the external auditor, and with the internal and external auditors without Executive Management. THE BOARD MAKES TIMELY AND BALANCED DISCLOSURE Qantas is committed to ensuring that trading in its shares takes place in an orderly and informed market, by having transparent and consistent communication with all shareholders. Qantas has an established process to ensure that it complies with its continuous disclosure obligations at all times, including a biannual confirmation by all Executive Management that the areas for which they are responsible have complied with the Group's Continuous Disclosure Policy. Qantas proactively communicates with its shareholders via the ASX and its web-based Newsroom, with all materials released by the Group being made available to all shareholders at the same time. Additionally, Qantas act