RATIO ANALYSIS

Contents

Qantas Annual Report 2016

Our Performance in 2015/16

02

Our Financial Framework

03

Chairman’s Report

04

CEO’s Report

06

Board of Directors

08

Review of Operations

12

Corporate Governance Statement

24

Directors’ Report

26

Financial Report

51

Shareholder Information

103

Financial Calendar and Additional Information

104

The Qantas Transformation

program has reshaped the Qantas

Group, delivered record results and

unlocked shareholder value. From

this position of strength, and with our

people more engaged than ever, we’re

looking ahead to a new phase

of innovation and growth.

With world demand for air travel set

to double over the next 20 years,

Qantas and Jetstar have the ability to

lead the aviation industry at a time of

unprecedented global change.

01

Q A N T A S A N N U A L R E P O R T 2 0 1 6

Q A N T A S A N N U A L R E P O R T 2 0 1 6 Our Performance* in 2015/16

This exceptional performance reflects the strength of our Qantas Group strategy, with record results and increased margins for Qantas Domestic, Qantas International, the Jetstar Group and Qantas Loyalty, and Group-wide return on invested capital of 23 per cent.

Total underlying earnings before interest and tax (EBIT) in the domestic market – across both Qantas and Jetstar – rose 30 per cent to $820 million, and total underlying EBIT from the Group’s international operations was $722 million, up 107 per cent.

The result also reflects the continued delivery of the Qantas Transformation program, which has now unlocked $1.66 billion in cost and revenue benefits since beginning in 2014.

The Group’s disciplined fuel hedging – which helped secure a $664 million benefit from lower global fuel prices – was another driver.

The Group’s financial position was strengthened during the year, with $2.8 billion in operating cash flow used for capital expenditure, shareholder distributions and debt repayments, and excess cash used for refinancing aircraft. Qantas’ strong balance sheet and more sustainable outlook was recognised by ratings agencies during the financial year, with an investment grade credit rating restored by Standard & Poor’s and Moody’s Investor services.

Qantas

Domestic $578m

Underlying EBIT.

Up 20 per cent

Qantas International $512m

Underlying EBIT.

Up 92 per cent

Jetstar

Group

$452m

Underlying EBIT.

Up 97 per cent

Qantas

Loyalty $346m

Underlying EBIT.

Up 10 per cent

QANTAS

FREIGHT $64m

Underlying EBIT. Down 44 per cent

*Refer to the Review of Operations section in the Qantas Annual Report 2016 for definitions and explanations of non-statutory measures

02

Our Financial Framework*

Qantas Transformation Scorecard

Q A N T A S A N N U A L R E P O R T 2 0 1 6

4.8 6.0

Net Debt ($b)

Disciplined Allocation of Capital

The Group used cash in excess of short-term liquidity requirements to refinance 29 maturing aircraft leases, while funds from operations were directed to debt repayments ($1.1 billion), net capital expenditure ($1 billion), and shareholder distributions ($1 billion).

Shareholder Returns

The Group has returned more than $1 billion to shareholders over the past 12 months, through a $505 million capital return (completed in November 2015) and $500 million on-market share buy-back (completed in June 2016). Combined, these two capital management initiatives reduced shares on issue by 12.6 per cent.

Our strong result in 2015/16 means we can return a further $500 million via a fully-franked ordinary dividend of 7 cents per share – totalling $134 million – and an on-market share buy-back of up to $366 million.

Where there is surplus capital in future, the Group will first distribute to shareholders via an ordinary dividend, in conjunction with share buy-backs, special dividends or a capital return should additional surplus exist.

*Refer to the Review of Operations section in the Qantas Annual Report 2016 for definitions and explanations of non-statutory measures

03

Chairman’s Report

The business is stronger, more

efficient and more customer-

focused as a result – and positioned

well for the future.

A Strong 2015/16

Once again, the Group’s balanced

portfolio of businesses and brands

showed its value in a complex

market.

The Group’s domestic two-brand

strategy has proven resilient

throughout Australia’s economic

transition, and that continued

in 2015/16 with record domestic

earnings. In the international

market, Qantas and Jetstar have

grown to meet rising demand in

Asia- Pacific markets, while the

Emirates partnership gives the

Group wide access to European

markets without significant

invested capital.

The Group’s

portfolio

showed its

value in a

complex

market.

04

Q A N T A S A N N U A L R E P O R T 2 0 1 6

Disciplined investment in product and service continues to secure record levels of satisfaction from customers, and the Qantas Loyalty business is increasingly a source of new ventures and diversified revenue streams.

Productivity and financial discipline underpin everything the Group does. This was recognised by Moody’s Investor Services, as well as Standard and Poor’s, when they restored our investment grade credit rating.

Shareholder Value

The Group has increased net free cash flow, grown return on invested capital and further strengthened its balance sheet, remaining in an optimal capital position throughout 2015/16.

I’m especially pleased that we have been able to return more than $1 billion in cash to shareholders over the past 12 months. Over the same period, earnings per share have almost doubled to reach 49 cents.

Shareholder returns will continue in 2016/17 with Qantas’ first ordinary dividend since 2009, and a further on-market share buy-back. Ordinary dividends will be our first choice for future capital management initiatives, in conjunction with other options including buy-backs, special dividends and capital returns, as appropriate.

Economic Conditions

Consumer confidence and travel demand softened in the domestic market through the middle of 2016.

However, Australia’s economic fundamentals are strong and demand in non-mining sectors is solid; the resurgence of inbound tourism with the lower Australian dollar has been particularly welcome.

Internationally, growth in our key Asia-Pacific trading partners is healthy, and Asia will be an engine room of air travel demand and Qantas Group growth for decades to come.

The UK Brexit decision had little direct impact on the Group, but did create short-term volatility in global markets, as other geopolitical events have done over recent years. This underlines the importance of the Group’s focus on cost control and diversifying revenue. Global Forces

Looking to the long term, it’s clear that global businesses are dealing with accelerating change in technology, geopolitics and demographics.

The Board believes Qantas’ ability to deliver sustainable growth over the long term rests on its ability to understand and navigate these global forces, incorporating them into strategic planning.

At the same time, the Board is focused on measuring progress against non-financial value drivers across environmental, social and governance issues.

Q A N T A S A N N U A L R E P O R T 2 0 1 6

The Qantas Annual Review sets out the Group’s approach to sustainability, its view of the global forces most relevant to the business, and its strategic priorities in responding to both the challenges and opportunities they present. Board Update

I was pleased to welcome Michael

L’Estrange AO to the Board as a Non-Executive Director in April this year. Michael was a senior public servant and diplomat with the Australian Government for more than 27 years, as well as holding academic posts and directorships. His experience in global affairs will be invaluable to the Board given the wide range of geopolitical issues influencing the Group. Looking forward

The Group’s efforts in 2016/17 will be focused on continuing to advance its strategy and grow shareholder value. In doing so, Qantas will continue to drive trade and tourism, serve communities, support small business and champion Australia on the world stage – as only the national carrier can do.

As it moves towards 100 years of serving Australia, Qantas is in a position of strength. Again, I congratulate employees on a year of achievement and success.

Leigh Clifford AO

05

Qantas’ record financial performance this past year is the continuation of a remarkable turnaround, built on the safety standards, operational excellence and customer satisfaction delivered by our people. That gives us the strongest possible foundations for the future.

It’s a performance that enabled us to announce a cash Record Result Bonus for non-executive employees, in recognition of their outstanding contribution, as well as rewards for our shareholders and the next phase of investment for our customers.

Group Performance

Every part of the Group contributed to our record result in 2015/16. Qantas Domestic, Qantas

International, the Jetstar Group and Qantas Loyalty all reported record underlying EBIT and increased their operating margins.

Two-thirds of our earnings now come from our domestic and loyalty businesses, and one-third from our international operations, underlining the diversification and reduced volatility the portfolio strategy gives us through economic cycles.

The Group continues to meet both the short-term and long-term goals of our Financial Framework, which shapes the way we think about creating value for shareholders.

06

Role of Transformation

The biggest single driver of our performance is the $1.66 billion in cost and revenue benefits that we’ve unlocked through the Qantas Transformation program. With the program now entering its final year, we expect that to increase to $2.1 billion by June 2017.

Transformation is making Qantas’ cost base competitive. Just as importantly, it’s changed the way we work. We’re a far more agile company. We’ve accelerated our adoption of new technology, digital platforms and data analytics. And we’ve fostered a culture that encourages diversity, inclusion and innovation.

Qantas is a very different company from just a few years ago. Together with our well-balanced Group strategy, transformation means we’re resilient enough to perform in all market conditions and outperform many of our peers.

But of course, our environment isn’t going to stop evolving. We need to keep controlling our costs and being open to new ways of doing business. Long-Term Sustainable Future

The ultimate goal of our transformation is to secure the sustainability of the Group.

We’re well on the way to doing that. But it’s not just about the actions we take in the short-term. We also need to think about the long-term – something that Qantas has done a great deal of over almost a century.

When we scan our environment, we see four global forces that are relevant to the success of the Group today and will have an even bigger impact in years ahead:

> New centres of customer demand and geopolitical influence, especially Asia;

> Rapid digitalisation and the rise of big data;

> Shifting customer and workforce preferences; and

> The implications of resource constraints and climate change.

All these trends come with challenges, but they also bring new opportunities for our business. Clear Strategic Priorities

Preparing to take advantage of the big, global trends shaping aviation means continuing to deliver against our clear strategic priorities:

> Putting safety and security first at all times;

> Maximising the competitive advantages of the Group by aiming to be the best in every market we serve;

> Continuing to invest for our customers and strengthening our brands, including renewing our fleet, lounges, infrastructure and technology;

> Focusing on our people, culture and leadership, because our skilled, engaged workforce is the key to our success in everything we do; and

> Acting responsibly on energy, emissions and our supply chain, so that we reduce the costs and emissions of the fuel we burn, and play a positive role in the communities that support us.

We’re committed to advancing these priorities in 2016/17.

Every part

of the Group

contributed

to our record

result in

2015/16.

Role of the National Carrier

The role of the national carrier is

core to Qantas’ identity. It’s what

sets our brand apart from every

other airline serving Australia,

and it’s why we continue to invest

in promoting Australian tourism,

showcasing Australian suppliers

and speaking up on issues that go to

the heart of the Australian belief in

basic fairness.

We’re as passionate as ever about

helping unlock Australia’s potential.

And we believe the best way we

can do that is by building a strong,

sustainable future for Qantas as the

airline that represents Australia in

the world.

Alan Joyce

07

Q A N T A S A N N U A L R E P O R T 2 0 1 6

Board of Directors

For the year ended 30 June 2016

Age: 50

08

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Board of Directors continued

For the year ended 30 June 2016

10

MAXINE BRENNER

BA, LLB

Independent Non-Executive Director

Maxine Brenner was appointed to the Qantas Board in August 2013.

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: 54

RICHARD GOODMANSON

BCom, BEc, MBA, MCE

Independent Non-Executive Director

Richard Goodmanson was appointed to the Qantas Board in June 2008.

He is Chair of the Safety, Health, Environment and Security Committee and a Member of the Nominations 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 Adviser to the Governor of Guangdong Province, China from 2003 until 2009.

Mr Goodmanson was born in Australia and is a citizen of both Australia and the United States.

Age: 69

JACQUELINE HEY

BCom, Grad Cert (Mgmt), GAICD

Independent Non-Executive Director

Jacqueline Hey was appointed to the Qantas Board in August 2013.

She is a Member of the Audit Committee.

Ms Hey is a Director of Bendigo and Adelaide Bank Limited and is Chair of its Change & Technology Committee and is a Member of both its Credit and Governance and HR Committees. She is also a Director of AGL Energy Limited, the Australian Foundation Investment Company Limited, Melbourne Business

School and Cricket Australia, and a Member of the ASIC Director Advisory Panel.

Ms Hey was also formerly a Director of the Special Broadcasting Service from 2011 to 2016.

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: 50

09

MICHAEL L’ESTRANGE AO

BA, MA (Oxon)

Independent Non-Executive Director

Michael L’Estrange was appointed to the Qantas Board in April 2016.

He is a Member of the Safety, Health, Environment and Security 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 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.

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.

Mr L’Estrange studied at Sydney University and later as a Rhodes Scholar at Oxford University where he graduated as a Master of Arts with First Class Honours.

Age: 63

WILLIAM MEANEY

BSc, MEng, MSIA

Independent Non-Executive Director

William Meaney was appointed to the Qantas Board in February 2012.

He is a Member of the Safety, Health, Environment and Security Committee and the Remuneration Committee.

Mr Meaney is the President and Chief Executive Officer of Iron Mountain Inc.

He is a Member of the Asia Business Council and also serves as Trustee of Carnegie Mellon University and Rensselaer Polytechnic Institute.

Mr Meaney was formerly the Chief

Executive Officer of The Zuellig Group and a Director of moksha8 Pharmaceuticals Inc. He was also the Managing Director and Chief Commercial Officer of Swiss International Airlines and Executive Vice President of South African Airways responsible for sales, alliances and network management.

Prior to these roles, Mr Meaney spent 11 years providing strategic advisory services at Genhro Management Consultancy as the Founder and Managing Director, and as a Principal with Strategic Planning Associates. Mr Meaney holds United States, Swiss and Irish citizenships. Age: 56

PAUL RAYNER

BEc, MAdmin, FAICD

Independent Non-Executive Director

Paul Rayner was appointed to the Qantas Board in July 2008.

He is Chair of the Remuneration Committee and a Member of the Nominations Committee.

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 Childrens Research Institute.

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.

Previously, Mr Rayner worked for 17 years in various finance and project roles with General Electric, Rank Industries and the Elders IXL Group.

Age: 62

TODD SAMPSON

MBA, BA(Hons)

Independent Non-Executive Director

Todd Sampson was appointed to the Qantas Board in February 2015.

He is a Member of the Remuneration Committee.

He has been the Executive Chairman of the Leo Burnett Group since September 2015, having been National Chief Executive Officer from 2008 to 2015 and also sits on the Board of Fairfax Media Limited.

Mr Sampson has close to 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: 46

BARBARA WARD AM

BEc, MPolEc

Independent Non-Executive Director

Barbara Ward was appointed to the Qantas Board in June 2008.

She is Chair of the Audit Committee, a Member of the Safety, Health, Environment and Security Committee and a Member of the Nominations Committee.

Ms Ward is a Director of Caltex Australia

Limited, a number of Brookfield Multiplex Group companies, and the Sydney Children’s Hospital Foundation.

She was formerly a Director of the

Commonwealth Bank of Australia,

Lion Nathan Limited, Brookfield

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 Chair of Country Energy and NorthPower and HWW Limited, a Board Member of Allens Arthur Robinson and the Sydney Opera House Trust 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: 62

Review of Operations

For the year ended 30 June 2016

RESULT HIGHLIGHTS

Underlying Profit Before Tax 1,532 $M

FY13

FY12

Statutory Profit After Tax 1,029 $M

FY15

FY13

FY12

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Board of Directors continued

For the year ended 30 June 2016

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Review of Operations continued

For the year ended 30 June 2016

11

10

11

The Qantas Group reported an Underlying Profit Before Tax[footnoteRef:1] of $1,532 million for the 12 months ended 30 June 2016, an improvement of $557 million from 2014/15 and a record result. The Group’s Statutory Profit After Tax of $1,029 million included $108 million of costs which were not included in Underlying PBT1 primarily driven by redundancies, restructuring and other costs associated with the ongoing Qantas Transformation Program. [1: Underlying Profit Before Tax (Underlying PBT) is the primary reporting measure used by the Qantas Group’s chief operating decision-making bodies, 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, Qantas Loyalty and Qantas Freight operating segments is Underlying Earnings Before Net Finance Costs and Tax (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/(Loss) Before Tax.]

The Group is delivering against its strategy to maximise long-term shareholder value; building on our leading position in domestic Australia, growing non-cyclical earnings at Qantas Loyalty, aligning Qantas and Jetstar with the rise of Asia and investing in our people and our customers. Over 2015/16, strategic highlights included:

· Record results for the Group and its segments[footnoteRef:2] [2: Based on Underlying Profit Before Tax (PBT) for the Qantas Group and Underlying EBIT (Earnings before net interest and income tax expense) for Qantas Domestic, Qantas International, Jetstar Group and Qantas Loyalty. ]

· Group Domestic EBIT[footnoteRef:3] up 30 per cent with enhanced dual brand coordination [3: Underlying EBIT of Qantas Domestic and Jetstar Domestic.]

· Reduction in ex-fuel unit cost[footnoteRef:4] of three per cent [4: Ex-fuel unit cost is calculated as Underlying PBT less ticketed passenger revenue and fuel, adjusted for changes in: employee provision discount rates and other assumptions changes, foreign exchange rates, share of net profit/(loss) of investments accounted for under the equity method and block codeshare flying agreements per ASK. The adjustment for foreign exchange rates is made to the comparative year to enable comparability.]

· Building a resilient and sustainable Qantas International through continued unit cost improvement

· Diversification of earnings with eight years of double-digit EBIT growth at Qantas Loyalty[footnoteRef:5] [5: When normalised for changes in accounting estimates of the fair value of points and breakage expectations effective 1 January 2009.]

· Building a pan-Asia brand at Jetstar, with an $85 million improvement in profitability from Jetstar Airlines in Asia

· Record levels of customer advocacy[footnoteRef:6] with targeted investment in service and product [6: Record NPS achieved at Qantas Domestic, Qantas International and Qantas Loyalty.]

· Record people engagement with continued focus on culture and leadership

The Qantas Transformation Program continues to underpin a maintainable earnings uplift, delivering $557 million of benefits over the financial year – ahead of a targeted $450 million of benefits. Ex-fuel unit cost was reduced by three per cent, and the Group’s revenue increased by two per cent, reflecting the cost reduction and revenue generation initiatives in the program. As a result of the program exceeding targets to date, the Group has raised the target of Qantas Transformation to $2.1 billion of benefits delivered by the end of financial year 2016/17, up from $2 billion.

The Group’s Financial Framework is at the centre of all capital allocation decisions, providing for balance sheet strength, investment in growth, and shareholder returns. Some key achievements under the Financial Framework include:

· Net debt[footnoteRef:7] of $5.6 billion within target range of $4.8 billion to $6 billion[footnoteRef:8] [7: Net debt under the Group’s Financial Framework includes net on balance sheet debt and off balance sheet aircraft operating lease liabilities. Capitalised operating lease liability is measured at fair value at the lease commencement date and remeasured over lease term on a principal and interest basis akin to a finance lease.] [8: Target range calculated based on current average invested capital.]

· Investment grade credit metrics and rating from Standard and Poor’s and Moody’s Investor Services

· Cost of capital minimised by using cash in excess of short-term requirements to refinance operating leases

· $1 billion returned to shareholders in 2015/16 through a capital return and on-market share buy-back

· $500 million in additional capital management initiatives announced including resumption of dividend payments with a seven cents per share ordinary dividend totalling $134 million and the announcement of a $366 million on-market buy-back

The Group achieved a strong increase in earnings in mixed global trading conditions, with margin expansion realised through total unit cost[footnoteRef:9] improvement of six per cent partially offset with a two per cent decrease in unit revenue[footnoteRef:10]. [9: Total Unit cost is calculated as Underlying PBT less ticketed passenger revenue per available seat kilometre (ASK).] [10: Unit Revenue is calculated as ticketed passenger revenue per ASK.]

Domestic Australia experienced a stable operating environment in non-resources sectors:

· Lower AUD and increased inbound visitor arrivals supporting domestic traffic growth

· Resource related traffic and revenue down compared to 2014/15

· Fourth quarter 2015/16 general demand weakness

The Group’s international operating environment was more competitive, with competitor capacity growth and sharper pricing activity seen on key routes:

· Increased industry capacity growth on the back of higher operating margins

· Industry-wide pricing activity passing on a portion of fuel benefit

· Geopolitical uncertainty impacting northern hemisphere travel

· Qantas and Jetstar capacity growth focused on higher demand markets in Asia

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 growth over the cycle, which in turn should translate into Total Shareholder Returns (TSR) in the top quartile of the ASX100 and a basket of global airlines11, the Financial Framework has three clear priorities and associated long-term targets:

MAINTAINABLE EPS

13

GROWTH OVER THE CYCLE

TOTAL SHAREHOLDER RETURNS IN THE TOP QUARTILE

1

.

Maintaining an Optimal Capital

Structure

2

.

ROIC > WACC

12

Through the Cycle

3

.

Disciplined Allocation of Capital

Minimise cost of capital by targeting a

net debt range of $4.8 billion to $6 billion

Deliver ROIC > 10 per cent through

the cycle

Grow Invested Capital with disciplined

investment, return surplus capital

Maintaining an Optimal Capital Structure

· The Group’s Financial Framework targets an optimal capital structure with a net debt range of between

Surplus Capital No Surplus Capital $4.8 billion and $6 billion, based on the current Average

Invested Capital of approximately $9 billion. This capital

Increased structure lowers the Group’s cost of capital, preserves

Debt reduction distributions, grow financial strength, and therefore enhances long-term

focus invested capital shareholder value.

· Capital allocation decisions, including distributions to shareholders, are sized to remain within the target net debt range on a forward basis.

OPTIMAL CAPITAL

STRUCTURE

ROIC (%)

· The Group’s optimal capital structure is consistent with

10% ROIC investment grade credit metrics from Standard and Poor’s and Moody’s Investor Services.

$4.8 $6.0

Net Debt ($B)

11 Target Total Shareholder Returns within the top quartile of the ASX100 and global listed airline peer group as stated in the 2015 Annual Report, with reference to the 2015-2017 Long Term Incentive Plan (LTIP).

12 Weighted Average Cost of Capital (WACC) is calculated on a pre-tax basis.

13 Earnings per share.

ROIC > WACC Through the Cycle

Return on Invested Capital 23 %

FY14

Disciplined Allocation of Capital

Sources Uses

Maintainable EPS Growth over the Cycle

Earnings Per Share 49.4 cents

Return on Invested Capital (ROIC) of 22.7 per cent, up from 16.2 per cent in the prior year, was achieved through generating higher returns from existing assets. Average Invested Capital in 2015/16 of $8.9 billion was slightly below Average Invested Capital of $9.1 billion in 2014/15 with disciplined capital expenditure. With increased fleet utilisation, cost reduction through the Qantas Transformation Program and lower fuel prices, returns were well above the Group’s threshold target of ROIC greater than 10 per cent.

Funds from Operations (FFO)[footnoteRef:11] increased to $3.1 billion in 2015/16. FFO were applied to: [11: Funds from Operations of $3.1 billion is equal to operating cash flows in the Consolidated Cash Flow Statement adjusted for the principal portion of operating leased aircraft rental payments. The principal portion of aircraft operating lease rentals are considered a debt repayment in the Group’s financial framework. After this adjustment, the interest portion of lease rental payments continues to be recognised as an outflow in Funds from Operations. ]

· $1.1 billion of debt repayments[footnoteRef:12] [12: Debt repayments of $1.1 billion refers to repayment of on balance sheet borrowings and capitalised operating lease liability repayments (excluding cash flows relating to aircraft operating lease refinancing). Debt reduction is equal to the total of financing cash flows in the statement of cash flows excluding shareholder distributions and payments for treasury shares, principal portion of operating leased aircraft rental payments and reduction of capitalised operating leases from the return of leased aircraft. ]

· $1 billion of net capital expenditure[footnoteRef:13] in line with guidance [13: Net capital expenditure of $1 billion is equal to net investing cash flows included in the Consolidated Cash Flow Statement (excluding aircraft operating lease refinancing) less the impact to invested capital of returning operating lease aircraft.]

· $1 billion distributed to shareholders in 2015/16 through a share buy-back and capital return

$778 million cash in excess of short-term liquidity requirements was used to refinance 29 aircraft out of maturing operating leases. Using the Group’s existing cash balance in this way achieved the following benefits:

· Reduced gross debt and cost of carry, minimal impact to net debt

· Greater fleet and maintenance planning flexibility

· Reduced exposure to USD lease rentals – Increased value of unencumbered assets to over

US$3.9 billion[footnoteRef:14] [14: Based on AVAC market values.]

Earnings per share almost doubled to 49.4 cents, with an

84 per cent improvement in Statutory Profit After Tax and a 12.6 per cent reduction in shares on issue. Shares on issue were reduced through the $505 million capital return and related share consolidation as well as the $500 million on-

.

2015/16

FY16

FY15

FY14

FY13

FY12

FY16

49.4

FY15

25.4

FY14

(128.5)

FY13

0.0

FY12

(10.8)

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For the year ended 30 June 2016

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For the year ended 30 June 2016

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10

11

market share buy-back, both of which were completed in

UNDERLYING PBT

The Qantas Group’s full-year 2015/16 Underlying PBT increased to $1,532 million, compared to an Underlying PBT of $975 million in 2014/15. The significant improvement in earnings was driven by the delivery of a reduction in ex-fuel unit cost, fuel efficiency initiatives, and revenue benefits from the Qantas Transformation Program and the benefits of lower fuel prices captured by the Group’s disciplined hedging program.

Net passenger revenue increased by three per cent, reflecting improved passenger loads in most markets and the Group’s capacity growth of five per cent. This stronger revenue performance was supported by network changes and capacity management which led to increased fleet utilisation. A reduction in the Group’s fuel expense resulted from lower AUD fuel prices and fuel efficiency measures in the Qantas Transformation Program.

June June

2016 2015 Change Change Group Underlying Income Statement Summary18 $M $M $M %

357 3

29

134

1

518

42

39

15

557

57

Change

Change

%

(86) (9)

113 9

384

2

(465) (5)

664 17

(128) (12)

34 7

100

June June

Operating Statistics 2016 2015

6,404 5

6,511 6

2,245 5

1pts 1

(0.13) (2)

0.49 6

0.16 3

Group capacity (Available Seat Kilometres) increased by five per cent, and demand (Revenue Passenger Kilometres) increased by six per cent, resulting in a one percentage point increase in Revenue Seat Factor. Unit revenue (Revenue per Available Seat Kilometres) decreased two per cent in 2015/16 with growth in the first-half of 2015/16 and a decrease in unit revenue in the second-half of 2015/16 as a proportion of the benefit from lower fuel prices was passed on in pricing in the international market. The Group’s ex-fuel unit cost improved by three per cent.

CONTINUED DELIVERY OF BUSINESS TRANSFORMATION

The Group’s balanced scorecard through the Qantas Transformation Program ensures a net benefit for the customer experience in addition to permanent reduction of costs. This was seen in customer and brand highlights for the year including:

· Record customer advocacy (NPS) results at Qantas Domestic, Qantas International and Qantas Loyalty

· Reconfiguration of the A330 fleet, progressively adding ‘Business Suites’ with lie-flat beds on A330 family aircraft

· Reconfiguration of the B737 fleet with 5422 completed to date, upgrading cabin interiors and in-flight entertainment at the same time as increasing seat count for efficiency gains

· B787 aircraft with enhanced customer offering in the Jetstar International fleet with the last three of 11 delivered during the year

· Continuation of global lounge upgrade program, with new lounges announced for London Heathrow and Brisbane

· Digital innovation focused on improving speed and ease of travel including auto check-in on mobile and the announced wi-fi roll-out for Qantas Domestic

18 Underlying expenses differ from equivalent statutory expenses due to items excluded from Underlying PBT, such as adjustments for impacts of AASB 9 which relate to other reporting periods and other items identified by Management. Refer to the reconciliation of statutory PBT to underlying PBT on page 22.

19 ASK – total number of seats available for passengers, multiplied by the number of kilometres flown.

20 RPK – total number of passengers carried, multiplied by the number of kilometres flown.

21 Revenue Seat Factor – RPK divided by ASK. Also known as seat factor, load factor or load.22 As at 24 August 2016.

The Group has delivered total benefits from the Qantas Transformation Program of $1.66 billion as at 30 June 2016, leading to an increase in the 2017 target to $2.1 billion. Since implementing the program in financial year 2014, ex-fuel expenditure has been reduced by nine per cent and all major milestones have been met on time or exceeded.

In 2015/16 Transformation benefits achieved of $557 million consisted of: – Cost reduction of $451 million, including $51 million of fuel efficiency benefits – Net revenue benefits of $106 million

The target metrics and progress to date as at 2015/16 include:

The Group-wide policy of implementing an 18-month wages freeze, whilst not part of the Qantas Transformation Program, is helping to offset inflation, build a more competitive and sustainable wages position going forward and closes the gap to our major domestic competitors. Thirty agreements have been closed with the wages freeze, with all of the major unions representing employee groups having signed up to the policy in at least one agreement.

In July 2015, Qantas announced that employees covered by the wages freeze policy will receive a bonus payment worth five per cent of their base annual salary. In August 2016, the Group announced a non-executive bonus payment of $3,000 for full-time and $2,500 for part-time employees, subject to the employee group having signed up to the 18-month wages freeze.

BUILDING ON THE GROUP’S LONG-TERM COMPETITIVE ADVANTAGES

The Qantas Group’s integrated portfolio strategy is designed to diversify earnings and mitigate risk, with the dual brands of Qantas and Jetstar and their presence in attractive markets across the Asia Pacific providing long-term growth opportunities. The starting point for the Group’s strategy is understanding the global forces that will impact Qantas over the long-term – the megatrends that present both risk and opportunity – and ensuring the Group is well positioned to respond.

Qantas has engaged with stakeholders including shareholders, sustainability thought leaders, industry partners and suppliers to identify and prioritise the global forces of most relevance to the Group. With this long-term context in mind, the Group’s strategic priorities allow us to navigate the right path, building on our long-term competitive advantages while recognising and responding to the risks and opportunities arising from emerging global forces.

(201)

New Centres

of Customer

Demand &

Geopolitical

Influence

Rapid Digitisation

& the Rise of Big

Data

Shifting

Customer

& Workforce

Preferences

Resource

Constraints &

Climate Change

CLEAR STRATEGIC PRIORITIES

Maximising

Leading Domestic

Position through

Dual Brand

Strategy

Investing in

Customer, Brand,

Data & Digital

Focus on People,

Culture &

Leadership

Building a

Resilient &

Sustainable

Qantas

International,

Growing Efficiently

with Partnerships

Aligning Qantas

& Jetstar with

Asia’s Growth

Diversification &

Growth at Qantas

Loyalty

Embedding Sustainability Across Qantas Group

RAPIDLY IMPROVED CASH GENERATION

Cash Flow Summary

June

2016

$M

June

2015

$M

Change

$M

Change

%

771

38

21

52

570

(778) >100 (607) 50

(93) (3) (20) (95)

(928) (32)

Debt Analysis

June

2016

$M

June

2015

$M

Change

Change

%

Net on balance sheet debt

32

2,880

2,594

286

11

Capitalised operating lease liabilities

33

2,766

3,806

(1,040)

(27)

Net debt

34

5,646

6,400

(754)

(12)

FFO/net debt

%

52

45

pts

7

Debt/EBITDA

times

2.5

3.0

(0.5)

times

32 Net on balance sheet debt includes interest-bearing liabilities and the fair value of hedges related to debt reduced by cash and cash equivalents.

33 Capitalised 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 the long-term exchange rate.

34 Net debt includes on balance sheet debt and capitalised aircraft operating lease liabilities under the Group’s Financial Framework.

Operating cash flows of $2.8 billion saw a strong increase from the prior year, reflecting cost and revenue benefits realised through the Qantas Transformation Program, and lower AUD fuel prices. When adjusted for the principal portion of operating rental payments, Funds from Operations were $3.1 billion.

Net capital expenditure of $1 billion included investment in replacement fleet such as the Boeing 787 for Jetstar International and customer experience initiatives including airport lounges and the continuation of Airbus A330 and Boeing 737 cabin reconfigurations. Qantas generated $1.7 billion of net free cash flow in the period facilitating net debt reduction and returns to shareholders of $1 billion in the financial year.

With reduced financial leverage and minimal near-term refinancing risk, the Group has optimised the mix of liquidity with less requirement for short-term liquidity held in cash. The Group used cash in excess of its short-term requirements to purchase aircraft out of maturing operating leases, reducing the cash at period end and increasing the value of the Group’s pool of unencumbered aircraft to over US$3.9 billion. Qantas continues to retain significant flexibility in its financial position, funding strategies and fleet plan to ensure that it can respond to any change in market conditions.

At 30 June 2016, the Group’s leverage metrics were well within investment grade (BBB/Baa range) with FFO/net debt of 52 per cent (2014/15: 45 per cent) and Debt/adjusted EBITDA of 2.5 times (2014/15: 3.0 times).

FLEET

The Qantas Group remains committed to a fleet strategy that provides for long-term flexibility and renewal. The fleet strategy is designed to support the strategic objectives of the Group’s two flying brands and the overarching targets of the Qantas Transformation Program. At all times, the Group retains significant flexibility to respond to any changes in market conditions and the competitive environment.

At 30 June 2016, the Qantas Group fleet[footnoteRef:23] totalled 303 aircraft. During 2015/16, the Group purchased six aircraft and reclassified one aircraft from assets held for sale back into the fleet: [23: Includes Jetstar Asia, Qantas Freight and Network Aviation and excludes aircraft owned by Jetstar Japan and Jetstar Pacific.]

· Qantas – two B717–200s, one Bombardier Q300 and one Fokker 100

· Jetstar – three B787–8s

The Group removed three aircraft from service in 2015/16 including two lease returns. These included two A330–200s and one B747–400. The Qantas Group’s scheduled passenger fleet average age is now 8.6 years[footnoteRef:24], within the targeted 8–10 year range. The benefits of fleet investment include improved customer satisfaction, improved environmental outcomes, operational efficiencies and cost reductions. [24: Based on Group’s scheduled passenger fleet, excluding freighter aircraft and Network Aviation.]

SEGMENT PERFORMANCE

$M %

Segment Performance Summary

June

2016

$M

June

2015

$M

Change

Change

98 20

245 92

(50) (44)

222 97

31 10

(5) 3

(23) >100

518 42

39

(15)

557

57

QANTAS DOMESTIC

Revenue Underlying EBIT 5,710 $M 578 $M

FY14

Qantas Domestic reported a record Underlying EBIT of $578 million, a stand out performance in a year that saw a continued drop off in revenue from the resources sector and general demand weakness in the final quarter 2015/16. Operating margin increased to 10.1 per cent, with ex-fuel unit cost[footnoteRef:26] improvement offsetting a decrease in revenue that was driven by the downturn in the Australian resources sector. Key drivers of the result included: [26: Ex-fuel unit cost is calculated as Underlying PBT less ticketed passenger revenue and fuel, adjusted for changes in: employee discount rates and other assumptions, and foreign exchange rates. ]

· Unit revenue was flat while ex-resources unit revenue[footnoteRef:27] increased by one per cent [27: Ex-resources unit revenue is unit revenue other than specific routes that are classified as resources.]

· Ex-fuel unit cost improvement of one per cent on capacity decrease of one per cent

Qantas Transformation delivered an increase in aircraft utilisation of two per cent[footnoteRef:28]. In response to the two-speed Australian economy, with passenger growth on east coast and leisure markets and contraction in intra-Western Australia and other resources markets, Qantas Domestic continued to shift aircraft to higher-growth markets. Resource-related passenger revenue was down $121 million[footnoteRef:29] in the year, not including a reduction in charter activity. [28: Average block hours per aircraft per day compared to 2014/15.] [29: Regular Public Transport (RPT) resources routes revenue compared to 2014/15.]

Qantas Domestic saw strong improvement in all key operational metrics including:

· Record on-time performance increasing to 89.7 per cent from 88.3 per cent in 2014/15[footnoteRef:30] [30: On time performance (OTP) of Qantas Mainline (excluding QantasLink) operations. Measured as departures within 15 minutes of scheduled departure time. Source: BITRE.]

· Customer advocacy (NPS)[footnoteRef:31] increased five percentage points to a record result with investment in B737 and A330 cabin upgrades – 15 x A330–200 and 54 x B737 reconfigurations completed[footnoteRef:32] [31: Average 2015/16 net promoter score based on internal Qantas reporting.] [32: As at 24 August 2016.]

· Passenger seat factor increased one percentage point to 75.2 per cent

QANTAS INTERNATIONAL

Revenue Underlying EBIT 5,750 $M 512 $M

Qantas International achieved a record Underlying EBIT of $512 million, a $1 billion turnaround since 2013/14 that reflects the successful restructure of the segment’s cost base, network and alliance partners, and a more dynamic approach to scheduling that has created new revenue opportunities. Highlights of the 2015/16 result included:

· Revenue increased five per cent with capacity growth and seat factor improvement

· Unit Revenue decline of one per cent for 2015/16 with a second-half 2015/16 decline of five per cent amid competitive market pricing – Ex-fuel unit[footnoteRef:33] cost improvement of four per cent driving margin uplift [33: Ex-fuel unit cost is calculated as Underlying PBT less ticketed passenger revenue and fuel, adjusted for changes in: employee provision discount rates and other assumptions, foreign exchange rates, and block codeshare flying agreements per ASK.]

· Qantas Transformation delivering utilisation increase of five per cent[footnoteRef:34] [34: Calculated as average block hours per aircraft per day. Compared to 2014/15.]

Aircraft were reallocated from Qantas Domestic to Qantas International in response to shifting demand, facilitating additional services to higher growth markets in Asia. Over the course of the financial year Qantas International added services to Japan, China, Singapore and Bali, consistent with its strategic objective of aligning with the region’s passenger growth.

Qantas International continued to broaden its network and strengthen offshore distribution with new alliance partnerships announced with American Airlines and China Eastern[footnoteRef:35]. The early integration of each alliance tracked according to plan, with synergies to begin being realised in 2016/17. [35: American Airlines partnership is subject to regulatory approval.]

Record customer advocacy[footnoteRef:36] results at the segment were the result of continued investment in product and service with all 10 International A330–300 cabin reconfigurations completed. [36: Average 2015/16 Net Promoter Score, based on internal Qantas reporting.]

JETSTAR GROUP

Revenue Underlying EBIT 3,636 $M 452 $M

FY14

Jetstar Group reported a record Underlying EBIT of $452 million, almost double the segment’s prior record result in 2014/15. The result saw a strong contribution from across the Jetstar Group’s domestic and international businesses, with highlights including:

· Jetstar Domestic result up 62 per cent to $242 million, leveraging brand and network advantage

· Strong Jetstar International profit with B787–8 efficiencies and growth in core Asia-Pacific markets

· Operating margin[footnoteRef:37] improvement, up 5.8 pts to 12.4 per cent [37: Operating margin calculated as Underlying EBIT divided by total segment revenue.]

· Controllable unit cost[footnoteRef:38] reduction of three per cent [38: Controllable unit cost excludes Jetstar New Zealand Regionals which commenced in December 2015, and is calculated as Underlying expenses less fuel, adjusted for changes in foreign exchange rates, share of net profit/(loss) of investments accounted for under the equity method, charter revenue and changes in sector length per ASK. 51 Includes Jetstar Asia (Singapore), Jetstar Japan and Jetstar Pacific.]

· Successful launch of New Zealand regional operations

A stand out of the Jetstar Group result was the performance of Jetstar Airlines in Asia51 which delivered an $85 million improvement in profitability compared to 2014/15. Jetstar Japan reported its maiden full year profit with international expansions and realising scale benefits. Jetstar Asia in Singapore had a strong result with the launch of four new destinations (including charters into China) and total unit cost reduction, notwithstanding a challenging competitive market. Jetstar Pacific in Vietnam’s earnings were lower in a highly competitive low fares market in the country, but continues to represent an attractive growth option for the Group in South East Asia.

Jetstar’s focus on driving customer advocacy and ancillary revenue growth continued with investment in innovative service training and digital sales. A re-design of jetstar.com, including data-driven ancillary product offering, has enhanced the customer experience.

QANTAS LOYALTY

Revenue Underlying EBIT 1,454 $M 346 $M

Qantas Loyalty reported a record Underlying EBIT of $346 million, the eighth consecutive year of double-digit earnings growth52. Diversifying the Group’s non-cyclical earnings at Qantas Loyalty remains a key pillar of the Group’s long-term strategy. Highlights in 2015/16 included:

· Revenue up 6.7 per cent; strong margins maintained

· 3.8 per cent growth in Qantas Frequent Flyer co-branded credit cards, outpacing industry53

· Continued growth of core Qantas Frequent Flyer coalition

· 44 per cent of revenue growth coming from Loyalty businesses other than Qantas Frequent Flyer

· Record customer advocacy after program enhancements

The Qantas Frequent Flyer and Aquire programs continued to attract new partners or extensions with existing ones. Significantly for Qantas Frequent Flyer, a new Woolworths proposition was announced that includes better member earn rates than under previous proposition. Core to the Loyalty strategy is diversification into new businesses that leverage the assets of the 11.4 million member base, in-house marketing expertise and digital capability. New ventures announced in the year were:

· Qantas Assure health insurance on target to deliver two to three per cent market share with a differentiated offering – Investment in Data Republic – Australia’s first secure public data exchange platform

QANTAS FREIGHT

Revenue Underlying EBIT 982 $M 64 $M

FY14

52 Qantas Loyalty record Underlying EBIT result compared to prior periods normalised for changes in accounting estimates of the fair value of points and breakage expectations effective 1 January 2009.

53 Based on number of personal credit card accounts with interest free periods; growth comparison for 12 months to June 2016; RBA credit and card charges statistics.

54 International capacity measured as international available freight tonne kilometres.

55 International load is measured as international revenue freight tonne kilometres divided by International available freight tonne kilometres.

Qantas Freight reported an Underlying EBIT of $64 million, a $50 million decrease from the prior year in line with guidance provided at the Group’s full year 2014/15 results. The performance reflected challenging global cargo markets, and more in keeping with historical performance. Key drivers of the result included:

· Revenue performance reflecting flat demand against a six per cent global capacity increase

· Conclusion of favourable Australian air Express legacy agreements in 2014/15

· Continued cost reduction through Qantas Transformation

Qantas Freight retains a leading position in the Australian cargo market with Australia Post and Toll Group, Australia’s largest air freight customers, under contract. With yields likely remaining under pressure, the segment is focused on delivering on strategic objectives to ensure sustainable performance in the future:

· Integrated ground to air operations

· Continued cost reduction through Qantas Transformation

· Developing growth opportunities into China through tactical freight deployment to Zhengzhou and Chongqing

· Agile scheduling to adapt to changing markets – for example new freighter stop-off into Dallas

RECONCILIATION OF UNDERLYING PBT TO STATUTORY PROFIT BEFORE TAX

The Statutory Profit Before Tax of $1,424 million for the year ended 30 June 2016 is $635 million higher than the prior year.

Underlying PBT

Underlying PBT is the primary reporting measure used by the Qantas Group’s chief operating decision-making bodies, 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, Qantas Loyalty and Qantas Freight operating segments is Underlying EBIT. The primary reporting measure of the Corporate segment is Underlying PBT as net finance costs are managed centrally. Underlying PBT is derived by adjusting Statutory Profit Before Tax for the impacts of ineffectiveness and non-designated derivatives relating to other reporting periods and certain other items which are not included in Underlying PBT.

2016 2015

$M $M

Underlying PBT is derived by adjusting Statutory Profit Before Tax for the impacts of:

i. Ineffectiveness and non-designated derivatives relating to other reporting periods

The difference between Statutory Profit Before Tax and Underlying PBT results from derivative mark-to-market movements being recognised in the Consolidated Income Statement in a different period to the underlying exposure.

Q A N T A S A N N U A L R E P O R T 2 0 1 6

Review of Operations continued

For the year ended 30 June 2016

Q A N T A S A N N U A L R E P O R T 2 0 1 6

Review of Operations continued

For the year ended 30 June 2016

Q A N T A S A N N U A L R E P O R T 2 0 1 6

Review of Operations continued

For the year ended 30 June 2016

11

10

11

ii. Other items not included in Underlying PBT

Items which are identified by Management and reported to the chief operating decision-making bodies 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, major transformational/restructuring initiatives, transactions involving investments, impairments of assets and other transactions outside the ordinary course of business. Other items not included in Underlying PBT of $93 million includes transformation costs relating to the Qantas Transformation Program of $183 million, the wage freeze employee bonus of $91 million relating to the Enterprise Bargaining Agreements (EBAs) announced on 3 July 2015 and other costs of $20 million offset by the net gain on disposal of property, plant and equipment of $201 million relating to the disposal of Sydney Airport Terminal Three and related assets to Sydney Airport Corporation Limited announced on 18 August 2015.

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 subject to a number of specific business risks which may impact the achievement of the Group’s strategy and financial prospects. The nature of these risks has not changed with the focus remaining on improving the controls in place to manage or mitigate these risks.

· Competitive intensity: Market capacity growth ahead of underlying demand impacts industry profitability.

· Australia’s liberal aviation policy settings coupled with the strength of the Australian economy relative to global economic weakness in recent years has attracted more offshore competitors to the Australian international aviation market, predominantly state-sponsored airlines. Qantas is responding by 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 has embarked on a major restructure of its legacy cost base through the Qantas Transformation Program with the objective of achieving a cost base comparable to direct competitors.

· The Australian domestic aviation market is a highly competitive environment. The Qantas Group’s market-leading domestic position and dual-brand strategy allow Qantas to effectively mitigate the impact of any market changes. This strategy leverages Qantas Domestic (including QantasLink) to serve business and premium leisure customers and Jetstar to serve pricesensitive customers. Qantas Domestic is focused on removing the cost base disadvantage to its competitor through Qantas Transformation initiatives while maintaining a revenue premium. Jetstar is working to maintain its lowest seat cost and yield advantage. These priorities deliver Qantas Domestic and Jetstar Domestic the highest operating margins in their respective markets enabling the Group to retain market share of Underlying EBIT 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. For 2016/17 the Group’s hedging profile is positioned such that the worst case total fuel cost is $3.2[footnoteRef:39] billion with 87 per cent participation rate in lower fuel prices (at current forward market price total fuel cost for 2016/17 is $3.1[footnoteRef:40] billion)[footnoteRef:41]. Complementing the hedging program, increased focus on forecasting and operational agility of our aviation operations supports the Group to manage the residual uncertainty. [39: The worst case total fuel cost is based on a two standard deviation correlated move in the Brent forward market prices to US$56/bbl with the AUD/USD rate at 0.78 for the remainder of 2016/17.] [40: The current forward market price total fuel cost is based on a Brent forward market price of A$67/bbl for the remainder of 2016/17.] [41: As at 23 August 2016.]

· Industrial relations: The associated risks of transformation including industrial action relating to Qantas’ collective agreements with its employees. The risk is being mitigated through continuous employee engagement initiatives and ongoing, constructive dialogue with all union groups and other relevant stakeholders. In 2015/16 the Group’s engagement score was at a record 79 per cent up four percentage points since 2014/15. The Group has successfully closed 30 Enterprise Bargaining Agreements (EBAs) subsequent to the commencement of the Qantas Transformation Program inclusive of an 18 month wage freeze. To support the implementation of the 18 month wage freeze a bonus payment of five per cent was announced in July 2015 to be made to all employees covered by an 18 month wage freeze. In addition, in August 2016 in recognition of the contribution towards a record result, the Group announced a further $3,000 bonus to all full-time employees and $2,500 to all part-time employees covered by an 18 month wage freeze.

· Integrity of data and continuity of critical systems: The Group’s operations depend on the continuity of a number of information technology and communication services and the integrity and protection of the privacy of data. The Group’s ongoing investment in cybersecurity, together with its extensive Control and Risk Framework[footnoteRef:42] work to reduce the likelihood of outages, ensure early detection and the mitigation of impact. [42: An overview of the Group Risk Management Framework is available through the Qantas Group Business Practices Document on www.qantas.com.au.]

· Key business partners and alliances: The Qantas Group has relationships with a number of key business partners. Any potential exposures as a result of these partnerships are mitigated through the Group Risk Management Framework.

Corporate Governance Statement

Q A N T A S A N N U A L R E P O R T 2 0 1 6

Review of Operations continued

For the year ended 30 June 2016

Q A N T A S A N N U A L R E P O R T 2 0 1 6

Q A N T A S A N N U A L R E P O R T 2 0 1 6

11

10

11

For the year ended 30 June 2016

OVERVIEW

Corporate governance is core to ensuring the creation, protection and enhancement of shareholder value. The Board maintains, and requires that Qantas 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 endorses the ASX Corporate Governance Principles and Recommendations, 3rd Edition (ASX Principles).

Accordingly, Qantas has taken the opportunity to disclose its 2016 Corporate Governance Statement in the Corporate Governance section on the Qantas website (http://www.qantas. com/travel/airlines/governance-structure/global/en). As required, Qantas has also lodged the 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 (http://www.qantas.com.au/infodetail/about/ corporateGovernance/BoardCharter.pdf).

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 10 Directors. Eight Directors are Independent Non-Executive Directors elected by shareholders and one has been appointed by the Board to fill a casual vacancy. 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 2016.

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 Committee Charters, as delegated and approved by the Board.

Membership of and attendance at 2015/2016 Board and Committee Meetings is detailed on page 26 of the 2016 Annual Report.

THE BOARD PROMOTES ETHICAL AND RESPONSIBLE DECISION-MAKING

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 employees.

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 entity while in possession of material nonpublic 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 entity, where control of any sale process relating to those securities may be lost.

For the year ended 30 June 2016

THE BOARD SAFEGUARDS THE INTEGRITY OF CORPORATE FINANCIAL REPORTING

The Board and 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.

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 with 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, with 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 made available to all shareholders at the same time. Additionally, Qantas actively conveys its publicly-disclosed information and seeks the views of its shareholders, large and small, in a number of forums, including at the Annual General Meeting (AGM), the Qantas Investor Day and, as is common practice among its major listed peers, through periodic meetings with current and potential institutional shareholders.

THE BOARD RESPECTS THE RIGHTS OF SHAREHOLDERS

Qantas has a Shareholder Communications Policy which promotes effective two-way communication with shareholders and the wider investment community, and encourages participation at general meetings.

Shareholders also have the option to receive communications from, and send communications to, Qantas and its Share

Registry electronically, including email notification of significant market announcements.

The external auditor attends the AGM and is available to answer shareholder questions that are relevant to the audit.

THE BOARD RECOGNISES AND MANAGES RISK

Qantas is committed to embedding risk management practices to support the achievement of business objectives and fulfil corporate governance obligations. The Board is responsible for reviewing and overseeing the risk management strategy for the Qantas Group and for ensuring the Qantas Group has an appropriate corporate governance structure. Within that overall strategy, Management has designed and implemented a risk management and internal control system to manage Qantas’ material business risks.

During 2015/2016, the two Board committees responsible for oversight of risk-related matters, the Audit Committee and the Safety, Health, Environment and Security Committee, undertook their annual review of the effectiveness of Qantas’ implementation of its risk management system and internal control framework.

The internal audit function is carried out by Group Audit and

Risk and is independent of the external auditor. Group Audit and Risk provides independent, objective assurance and consulting services on Qantas’ system of risk management, internal control and governance.

The Audit Committee approves the Group Audit and Risk Internal Audit Charter, which provides Group Audit and Risk with full access to Qantas Group functions, records, property and personnel, and establishes independence requirements. The Audit Committee also approves the appointment, replacement and remuneration of the internal auditor. The internal auditor has a direct reporting line to the Audit Committee and also provides reporting to the Safety, Health, Environment and Security Committee.

THE BOARD REMUNERATES FAIRLY AND RESPONSIBLY

The Qantas executive remuneration objectives and approach are set out in full below.

Information about remuneration of Executive Management is disclosed to the extent required, together with the process for evaluating performance, in the Remuneration Report from page 30 of the 2016 Annual Report.

Qantas Non-Executive Directors are entitled to statutory superannuation and certain travel entitlements (accrued during service) that are reasonable and standard practice in the aviation industry. Non-Executive Directors do not receive any performance-based remuneration (see pages 47 to 48 of the Qantas Annual Report 2016).

Directors’ Report

For the year ended 30 June 2016

The Directors of Qantas Airways Limited (Qantas) present their Report together with the Financial Statements of the consolidated entity, being Qantas and its controlled entities (Qantas Group), for the year ended 30 June 2016 and the Independent Audit Report thereon.

DIRECTORS

The Directors of Qantas at any time during or since the end of the year are: Leigh Clifford AO

Alan Joyce

Maxine Brenner

Richard Goodmanson

Jacqueline Hey

Michael L’Estrange AO (appointed 7 April 2016)

William Meaney

Paul Rayner

Todd Sampson

Barbara Ward AM

Details of current Directors, their qualifications, experience and any special responsibilities, including Qantas Committee Memberships, are set out on pages 8 to 11.

PRINCIPAL ACTIVITIES

The principal activities of the Qantas Group during the course of the year were the operation of international and domestic air transportation services, the provision of freight services and the operation of a frequent flyer loyalty program. There were no significant changes in the nature of the activities of the Qantas Group during the year.

DIVIDENDS

The Directors have declared a fully franked dividend of seven cents per ordinary share in relation to the year ended 30 June 2016, totalling $134 million (2015: nil). No interim dividend was paid during the year.

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

In the opinion of the Directors, there were no significant changes in the state of affairs of the Qantas Group that occurred during the year under review.

Any matter or circumstance that has arisen since the end of the year that may affect the Qantas Group’s state of affairs in future financial years has been included in Note 27 to the

Financial Statements.

REVIEW OF OPERATIONS

A review of, and information about, the Qantas Group’s operations, including the results of those operations during the year together with information about the Group’s financial position appear on pages 12 to 23.

The Qantas Group’s strategies, prospects for future financial years and material business risks have been included in the Review of Operations to the extent that they are not likely to result in unreasonable prejudice to the Qantas Group. In the opinion of the Directors, detail that could be unreasonably prejudicial to the interests of the Qantas Group, for example, information that is commercially sensitive, confidential or could give a third party a commercial advantage, has not been included.

EVENTS SUBSEQUENT TO BALANCE DATE

Refer to page 87 for events which occurred subsequent to balance

date. Other than the matters disclosed on page 87, since the end of the year and to the date of this Report no other matter or circumstance has arisen that has significantly affected or may significantly affect the Qantas Group’s operations, results of those operations or state of affairs in future years.

DIRECTORS’ MEETINGS

The number of Directors’ Meetings held (including Meetings of Committees of Directors) during 2015/2016 is as follows:

Safety, Health, Environment

and Security Remuneration Nominations

Audit Committee1 Committee1 Committee1 Committee1

Qantas Board

Scheduled

Meetings

Unscheduled

Meetings

Sub-Committee

Meetings

2

1 All Directors are invited to, and regularly attend, committee meetings in an ex-officio capacity. The above table reflects the attendance of a Director only where he or she is a member of the relevant committee.

2 Sub-Committee meetings convened for specific Board-related business.

3 Number of meetings held during the period that the Director held office.

4 Number of meetings held and requiring attendance.

5 Mr L’Estrange was appointed as a Director on 7 April 2016 and as a Member of the Safety, Health, Environment and Security Committee on 21 June 2016.

DIRECTORSHIPS OF LISTED COMPANIES HELD BY MEMBERS OF THE BOARD AS AT 30 JUNE 2016

– FOR THE PERIOD 1 JULY 2013 TO 30 JUNE 2016

1 Responsible entity for the Brookfield Prime Property Fund and the Multiplex European Property Fund, both of which are listed Australian registered managed investment schemes. Previously responsible entity for the Brookfield Australian Opportunities Fund, which was wound up on 30 October 2012.

2 Responsible entity for the Multiplex SITES Trust, which is a listed Australian registered managed investment scheme.

QUALIFICATIONS AND EXPERIENCE OF EACH PERSON WHO IS A COMPANY SECRETARY OF QANTAS AS AT 30 JUNE 2016

John David Francis Morris – Appointed as a Company Secretary on 9 April 2014

· Joined Qantas on 28 March 2010

· 2002 to 2008 – General Counsel and Company Secretary at KAZ Group

· 1997 to 2002 – Solicitor then Senior Associate at Ashurst (previously Blake Dawson Waldron)

· Admitted as a solicitor of the Supreme Court of Victoria in 1992

DIRECTORS’ INTERESTS AND BENEFITS

Particulars of Directors’ interests in the issued capital of Qantas at the date of this Report are as follows:

Number of Shares

In addition to the interests shown, indirect interests in Qantas shares held in trust on behalf of Mr Joyce are as follows:

1 The number of deferred shares awarded under the 2014/15 Short Term Incentive Plan were impacted by the share consolidation completed on 6 November 2015 through the conversion of each share into 0.939 shares.

2 The deferred shares under the 2015/16 Short Term Incentive Plan are awarded to Mr Joyce on 2 September 2016.

Number of Rights

1 100 per cent of the 2014–2016 Long Term Incentive Plan Rights awarded to Mr Joyce on 18 October 2013 vested and converted to 2,151,000 shares following the performance hurdle testing conducted as at 30 June 2016.

2 Shareholders approved the award of these Rights on 24 October 2014. Performance hurdles will be tested as at 30 June 2017 to determine whether any Rights vest to Mr Joyce.

3 Shareholders approved the award of these Rights on 23 October 2015. Performance hurdles will be tested as at 30 June 2018 to determine whether any Rights vest to Mr Joyce.

RIGHTS

Performance Rights are awarded to select Qantas Group Executives under the Qantas Deferred Share Plan (DSP) and the Qantas Employee Share Plan (ESP). Refer to pages 38 to 40 for further details.

The following table outlines the movements in Rights during the year:

Number of Rights

1 The movement of Rights outstanding as at 30 June 2016 to the date of this Report is explained in the footnotes on page 29.

Rights will be converted to Qantas shares to the extent performance hurdles have been achieved. The Rights do not allow the holder to participate in any share issue of Qantas. No dividends are payable on Rights. The fair value of Rights granted is calculated at the date of grant using a Monte Carlo model and/or Black-Scholes model.

The following Rights were outstanding at 30 June 2016:

Number of Rights

1 These Rights convert to Qantas shares on the 10th anniversary of the date of award, however Executives may call for the Rights to be converted sooner at their request.

2 85 per cent of Rights vested subsequent to 30 June 2015 and before the issuance of this Report following the performance hurdle testing conducted as at 30 June 2015.

3 100 per cent of Rights vested subsequent to 30 June 2016 and before the issuance of this Report following the performance hurdle testing conducted as at 30 June 2016.

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INTRODUCTION OVERVIEW OF THE EXECUTIVE REMUNERATION FRAMEWORK

The objectives of the Executive Remuneration Framework are to attract, motivate, retain and appropriately reward a capable Executive team. This is achieved by setting pay opportunity at an appropriate level and by linking remuneration outcomes to Qantas performance.

The Qantas Executive Remuneration Framework and the remuneration outcomes for 2015/2016 are summarised as follows:

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REMUNERATION OUTCOMES FOR THE CEO IN 2015/2016

The remuneration outcomes for the CEO in 2015/2016 are detailed in the following table.

The CEO’s variable pay outcome for 2015/2016 was:

· An award under the 2015/16 STIP comprising a cash bonus of $3,264,000 and $1,632,000 worth of shares with a two year restriction period

· 100 per cent of the 2014–2016 LTIP Rights awarded to the CEO vested and converted to 2,151,000 shares. At the start of the LTIP performance period (1 July 2013) this number of shares would have been valued at $2,904,000 (2,151,000 shares at $1.35 share price). Given the 109 per cent increase in share price (to $2.82 on 30 June 2016), the value of these shares has appreciated by $3,162,000

These outcomes are aligned with the CEO’s and Qantas’ performance during 2015/2016 as well as being aligned with Qantas’ longer-term performance. This link between pay and performance is detailed below.

2016 as a

Percentage

2016 ‘At of ‘At Target’

CEO Remuneration 2016 2015 Target’ Pay Pay

Outcomes1 $’000 $’000 $’000 %

1 Detail of non-statutory remuneration methodology is explained on pages 38 and 40.

2 The number of restricted shares to be awarded will be determined based on the seven calendar day Volume Weighted Average Share Price as at 31 August 2016.

3 LTIP vesting at 100 per cent valued at the start of the performance period (1 July 2013) when the share price was $1.35.

4 The ‘At Target’ Pay for LTIP is set based on a fair value allocation methodology for LTIP awards. The ‘At Target’ value applying a face value methodology for the 2014–2016 LTIP would be $2,904,000.

5 Increase in the value of the vested shares over the performance period (1 July 2013 to 30 June 2016).

Link Between CEO Pay and Performance

The CEO’s pay is linked to Qantas’ performance through the performance measures under both the annual incentive and the long-term incentive. At Qantas, annual incentives are only paid in years when, in the Board’s view, the business and Executives have performed well. Similarly, long-term incentives only vest where financial performance has been strong and challenging three year performance measures are met. This is demonstrated in the CEO Remuneration Outcomes History graph on page 33.

Base Pay

The CEO’s Base Pay has been frozen since 1 July 2011 and he did not receive an increase to Base Pay during 2015/2016. Additionally, the CEO forwent five per cent of his Base Pay from 1 January 2014 until 30 June 2015. This ceased on 1 July 2015.

Base Pay (cash) is Base Pay of $2,125,000 less superannuation contributions of $19,308. Base Pay is benchmarked against external market data including comparable roles in other listed Australian companies and international airlines.

Annual Incentive – 2015/16 STIP Outcome

In determining outcomes under the STIP, the Board assesses performance against financial, safety and other key business measures as part of a balanced scorecard, as outlined on page 41.

The STIP award paid to the CEO for 2015/2016 was determined primarily by Management’s delivery of the record financial results as well as meeting or exceeding non-financial measures that comprise the STIP scorecard. The Board assessed the CEO and Management’s significant contribution to these results, in particular:

· Delivery in 2015/2016 of $557 million cost savings and revenue enhancements driven by the Qantas Transformation program – in excess of the targeted $450 million of benefits from the program in the financial year. This contributed to the Group’s ex-fuel unit cost reducing by three per cent in the financial year

· Management’s prudent approach to fuel hedging and active restructuring of hedged positions, as well as the Qantas Transformation program, enabled a $664 million reduction in year-on-year underlying fuel expense. Qantas’ approach to fuel hedging continued to provide a higher participation in falling fuel prices compared to many of our competitors

· Continued investment in the customer (better product and more training for our people), which delivered record customer advocacy, or Net Promoter Scores

· Growth of earnings in core domestic airline businesses (Qantas and Jetstar), achieving another year of margin expansion compared to domestic competitors in both premium and low-cost customer segments. Core competitive advantages in domestic Australia including Qantas’ network and frequency, as well as customer product premium, and Jetstar’s cost and scale advantage were all either maintained or enhanced

· Pursuit of growth opportunities in international markets, via 787 aircraft in Jetstar International, growth of Jetstar Airlines in Asia, the commencement of regional Jetstar services in New Zealand and new airline partnerships supporting network growth at Qantas International

· Increased aircraft utilisation which allowed growth of passenger revenue using existing Group aircraft

· Continued growth of diversified earnings at Qantas Loyalty, with core Qantas Frequent Flyer program and new adjacent businesses (Qantas Cash, Aquire) performing well and the expansion into health insurance with the launch of

Qantas Assure

Based on the Board’s assessment of performance against the STIP scorecard measures and the CEO’s individual performance, the CEO’s STIP award was calculated as follows:

Total = Base Pay x Opportunity‘At Target’ x Scorecard Result x Performance Individual Factor

4,896,000 = 2,125,000 x 120% x 160% x 1.2

The CEO’s 2015/16 STIP award was paid two-thirds as a cash bonus of $3,264,000 and one-third as deferred shares worth $1,632,000 with a two year restriction period.

More detail on the 2015/16 STIP is provided on pages 37 to 42.

Long Term Incentive – 2014–2016 LTIP Outcome

At the 2013 Annual General Meeting (AGM), shareholders approved an award of 2,151,000 Rights to the CEO under the 2014–2016 LTIP. The vesting of these Rights was subject to Qantas TSR performance compared to two peer groups (companies with ordinary shares included in the ASX100 and Global Listed Airlines).

Over the three year performance period of the 2014–2016 LTIP, the Qantas share price grew from $1.35 to $2.82, and together with the capital structure initiatives delivered a TSR of +109 per cent.

The following graph demonstrates Qantas TSR performance versus the ASX100 and MSCI World Airline Indices over the performance period of the 2014–2016 LTIP.

QANTAS TSR PERFORMANCE v PEER GROUPS (%)

This share price performance meant that Qantas ranked 2nd in the ASX100 and ranked 2nd in the Global Listed Airlines. Based on this performance, 100 per cent of Rights vested and the CEO was awarded 2,151,000 shares.

The face value of the vested shares based on the Qantas share price at the start of the performance period was $2,904,000. The value of these shares increased by $3,162,000 over the three year performance period.

CEO REMUNERATION OUTCOMES HISTORY

(2010/2011 TO 2015/2016)

The Group’s incentive awards are designed to align Executive remuneration with business performance. This is demonstrated in the history of the incentive plan outcomes for the CEO.

20

%

40

%

60

%

80

%

100

%

120

%

140

%

160

%

2011

$552

2012

$95

2013

$186

2014

($646)

2015

$975

2016

$1,532

65

%

0

%

0

%

0

%

0

%

0

%

0

%

STIP

LTIP

STIP

LTIP

STIP

LTIP

STIP

LTIP

STIP

LTIP

STIP

LTIP

OUTCOME %

LTIP Vesting

STIP Scorecard Outcome

Outcomes:

Underlying

PBT ($m):

100

%

160

%

85

%

140

%

38

%

65

%

STATUTORY REMUNERATION DISCLOSURES FOR THE CEO

The statutory remuneration disclosures are prepared in accordance with Australian Accounting Standards and differ significantly from the outcomes for the CEO resulting from performance in 2015/2016 outlined on page 32.

These differences arise due to the accounting treatment of share-based payments for the STIP and LTIP. A reconciliation of remuneration outcomes to statutory remuneration disclosures is provided on page 37.

2016 ‘At

2016 2015 Target’ Pay

CEO Statutory Remuneration Table $’000 $’000 $’000

1 The ‘At Target’ Pay for LTIP is set based on a fair value allocation methodology for LTIP awards. The ‘At Target’ value applying a face value methodology for the 2014–2016 LTIP would be $2,904,000.

REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2016

The Remuneration Report sets out remuneration information for the CEO, Executive Management and Non-Executive Directors.

Section 300A of the Corporations Act 2001 requires disclosure of remuneration information for KMP, with KMP defined in Australian Accounting Standard AASB 124 Related Party Disclosures as those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director (whether executive or otherwise) of that entity.

1) EXECUTIVE REMUNERATION OBJECTIVES AND APPROACH

In determining Executive remuneration, the Board aims to do the following:

· Attract, retain and appropriately reward a capable Executive team

· Motivate the Executive team to meet the unique challenges the company faces as a major international airline based in Australia – Link remuneration to performance of the business and the performance of the Executives

To achieve this, Executive remuneration is set with regard to the size and nature of the role (with reference to market benchmarks) and the performance of the individual in the role. Remuneration includes ‘at risk’ or performance-related elements for which the objectives are to:

· Link Executive reward with Qantas’ business objectives, financial performance and the performance of the Executives – Align the interests of Executives with shareholders

· Support a culture of Executive share ownership – Support the retention of Executives

2) ROLE OF THE REMUNERATION COMMITTEE

The Remuneration Committee (a Committee of the Board, whose members are detailed on pages 8 to 11 has the role of reviewing and making recommendations to the Board on specific Executive remuneration matters at Qantas and ensuring remuneration decisions are appropriate from the perspectives of business performance, Executive performance, governance, disclosure, reward levels and market conditions.

In fulfilling its role, the Remuneration Committee is specifically concerned with ensuring that its approach will:

· Motivate the CEO, Executive Management and the broader Executive team to pursue the long-term growth and success of Qantas – Demonstrate a clear relationship between pay and performance

· Ensure an appropriate balance between ‘fixed’ and ‘variable’ remuneration, reflecting both the short-term and long-term performance objectives of Qantas

· Differentiate between higher and lower performers through the use of a performance management framework

During 2015/2016, the Remuneration Committee re-appointed Ernst & Young (EY) as its remuneration consultant. The Remuneration Committee has established protocols in relation to the appointment and use of remuneration consultants to support compliance with the Corporations Act 2001, which are incorporated into the terms of engagement with EY.

The Remuneration Committee did not request any remuneration consultants to provide a remuneration recommendation during 2015/2016.

3) EXECUTIVE REMUNERATION FRAMEWORK

The Executive Remuneration Framework as it applies to the CEO and Executive Management contains three elements:

· Base Pay – a guaranteed salary level inclusive of superannuation

· Annual Incentive – referred to as the Short Term Incentive Plan (STIP)

· Long Term Incentive – referred to as the Long Term Incentive Plan (LTIP)

4) REVIEW OF REMUNERATION FRAMEWORK

During 2015/2016, the Remuneration Committee reviewed the Remuneration Framework to ensure it continued to be aligned with Qantas’ business strategy. The review focused on LTIP, in particular:

· LTIP Performance Measures: the Remuneration Committee considered a number of alternate LTIP performance measures, such as Return on Invested Capital (ROIC). The Committee concluded that the current LTIP performance measures, of relative TSR of Qantas compared to companies in the ASX100 and Global Listed Airlines, remain the most appropriate measures as they are explicitly aligned to the objectives of Qantas’ Financial Framework.

· LTIP Allocation Methodology (fair value versus face value): the Remuneration Committee reviewed the allocation methodology used to determine the number of Rights granted under the LTIP. The Committee determined that any change in allocation methodology from a ‘fair value’ to a ‘face value’ would not result in a change to the number of Rights awarded to Executives. Therefore, the Committee decided to retain the current ‘fair value’ allocation methodology, but to disclose equivalent ‘face value’ information to improve transparency to shareholders.

5) REMUNERATION OUTCOMES FOR 2015/2016

The remuneration decisions and outcomes at Qantas are clearly linked to Qantas’ performance via the performance measures in the STIP and LTIP.

This year’s record financial performance resulted in outcomes above the ‘At Target’ level under the 2015/16 STIP. The result under the STIP is detailed on page 41.

The performance measures for the 2014–2016 LTIP, being Qantas’ TSR relative to companies with ordinary shares included in the ASX100 and Global Listed Airlines, were tested as at 30 June 2016. Based on the vesting scale, Qantas ranked 2nd in the ASX100 and ranked 2nd in the Global Listed Airlines. This resulted in 100 per cent of Rights vesting and converting to Qantas shares.

The following table summarises the remuneration decisions and outcomes for the CEO and Executive KMP for the year ended 30 June 2016. The remuneration detailed in this table is aligned to the current year performance and therefore is particularly useful in understanding current year pay and its alignment with current year performance.

Remuneration Outcomes Table – CEO and Executive KMP1

2 Base Pay (cash) paid to each Executive during the year.

3 The full value of STIP awards made to each Executive during each of the 2015/2016 and 2014/2015 financial years.

4 LTIP awards vested in 2015/2016 at 100 per cent. LTIP awards vested in 2014/2015 at 85 per cent.

5 The number of Rights vested multiplied by the Qantas share price at 1 July 2013, as the start of the performance period (2015: 1 July 2012).

6 Other Benefits are detailed on page 40.

7 The ‘LTIP share price growth’ amount is equal to the number of Rights vested multiplied by the increase in the Qantas share price over the three year performance period ended 30 June 2016 (2015: 1 July 2012 to 30 June 2015).

8 2014/2015 remuneration reflects the period of time in a key management role for Mr La Spina and Mr David (1 March 2015 to 30 June 2015).

Pages 37 to 42 of the Remuneration Report describe Executive Remuneration Structure, Base Pay, STIP and LTIP and provide an analysis of the 2015/2016 outcomes for the STIP and LTIP.

6) STATUTORY REMUNERATION DISCLOSURES FOR 2015/2016

The statutory remuneration disclosures for the year ended 30 June 2016 are detailed below and are prepared in accordance with Australian Accounting Standards and differ from the 2015/2016 remuneration outcomes outlined above. These differences arise due to the accounting treatment of share-based payments for the STIP and LTIP.

Statutory Remuneration Table – CEO and Executive KMP

Incentive Plan – Accounting Accrual Other Benefits

$’000s

Equity-settled

Share-based Payments

Post- Other Base Pay STIP Cash Deferred Non-cash employment Long-term

Current Executives (Cash)1 Bonus1 Shares Rights Sub-total Benefits1,3 Benefits4 Benefits5 Sub-total Total

1 Short-term employee benefits include Base Pay (cash), STIP cash bonus and non-cash benefits.

2 Base Pay (cash) for Mr Joyce is Base Pay of $2,125,000 less superannuation contributions of $19,308. For 2015 Base Pay was $2,125,000 less Base Pay forgone of $106,250 less superannuation contributions of $18,783.

3 Non-cash Benefits include the value of travel benefits whilst employed and other minor benefits.

4 Post-employment Benefits include superannuation and an accrual for post-employment travel of $44,000 for Mr Joyce and $22,000 for each other Executive (2015: $51,000 for Mr Joyce and $25,000 for each other Executive).

5 Other Long-term Benefits include movement in annual leave and long service leave balances. The accounting value of other long-term benefits may be negative, for example where an Executive’s annual leave balance decreases as a result of taking more than the 20 days annual leave they accrue during the year.

6 2014/2015 remuneration reflects the period of time in a key management role for Mr La Spina and Mr David (1 March 2015 to 30 June 2015).

A reconciliation of the CEO’s remuneration outcome to the statutory disclosures is detailed below as an example. CEO’s Remuneration Outcome to Statutory Remuneration Disclosure for 2015/2016

Reconciliation ($’000s) Description

1 The 2014–2016 LTIP was tested as at 30 June 2016. 100 per cent of Rights vested.

2 The 2015–2017 LTIP is due to be tested as at 30 June 2017. The Qantas share price at the start of the performance period (1 July 2014) was $1.26.

3 The 2016–2018 LTIP is due to be tested as at 30 June 2018. The Qantas share price at the start of the performance period (1 July 2015) was $3.16.

4 The number of Rights vested multiplied by the Qantas share price at the start of the performance period (1 July 2013).

5 The number of Rights vested multiplied by the increase in the Qantas share price over the three year performance period ended 30 June 2016.

7) EXECUTIVE REMUNERATION STRUCTURE

Awards

Value of

= STIP Award

Qantas TSR Performance compared to the Global Listed Airlines Peer Group Vesting Scale

Below 50th percentile Nil vesting

Between 50th and 75th percentile Linear scale: 50% to 99% vesting

At or above 75th percentile 100% vesting

Number of Rights awarded =

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2015/2016 Balanced Scorecard Outcomes

For 2015/2016, the Board considered the following key measures of financial and operational performance and the associated targets to be critical indicators of performance and drivers of shareholder value. The performance outcomes for these measures are reflected in the CEO and Executive Management’s remuneration outcomes. The table below summarises performance versus target against each scorecard category under the 2015/16 STIP.

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Group

Profitability

Qantas Transformation and the Cost

Agenda

People and

Operational Safety

Customer

Growth and

Strategic Initiatives Underlying Profit

Before Tax (PBT)

Deliver transformation benefits Unit cost

People Safety measures Board’s assessment of Operational Safety

Net Promoter Score (NPS)

Punctuality Domestic network attractiveness

Qantas Loyalty: EBIT growth

Investments in Jetstar Airlines in Asia: Underlying EBIT

Revenue

Management System Milestones and project benefits 50%

2015/16

STIP Scorecard Outcome

%

100

–175%

(0

)

160

%

Key:

Above target

achievement

against targets

Full achievement

against targets

Partial achievement

against targets

No achievements

against targets

(0–100%)

20%

(0–30%)

10%

(0–15%)

10%

(0–15%)

10%

(0–15%)

Comment

The Underlying PBT result of $1,532 million for 2015/2016 exceeded the ‘overdrive’ target set by the Board.

Therefore, this measure contributed a maximum overdrive outcome of 100 per cent (out of 50 per cent) to the STIP scorecard.

Management’s commitment and focus on the Qantas

Transformation program to date has delivered $1,655 million of benefits. During 2015/2016 the Group realised $557 million in cost and revenue benefits through transformation initiatives, exceeding the full year target of $450 million announced to the market in February 2016.

Qantas International, Qantas Domestic and Jetstar Group exceeded the unit cost target set.

Management’s continued focus on Operational and People safety resulted in targeted improvements in People Safety metrics being achieved and good Operational Safety for the year. Therefore, there was an at target contribution under the People Safety and the Operational Safety measures.

The Board recognised that Management’s continued investment in the customer has resulted in NPS targets for Qantas International, Qantas Domestic and Qantas Frequent

Flyer being exceeded. NPS targets were not achieved by

Jetstar Domestic, however, above threshold or above target NPS results were achieved by other Jetstar Group Airlines.

Qantas Domestic exceeded its on-time performance target for 2015/2016, with 89.7 per cent of flights on-time.

Qantas Domestic and Jetstar also maintained the Group’s network advantage in the Australian domestic market.

Management continued to grow diversified earnings and pursue growth opportunities. Qantas Loyalty achieved its Earnings Before Interest and Tax (EBIT) growth target for 2015/2016.

Earnings targets for the two key Jetstar Airlines in Asia, Jetstar Asia and Jetstar Japan were exceeded.

Qantas Revenue Management System key project milestones and review benefits were achieved.

Additional Descriptions of STIP Scorecard Measures

Additional Descriptions of STIP Scorecard Measures

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Growth and Strategic To support the strategic initiatives of growing diversified earnings, STIP targets were set to grow Qantas

Initiatives Loyalty EBIT. Earnings targets were also set for each of Jetstar Asia and Jetstar Japan to support delivering on Jetstar investments in Asia.

To support the successful delivery of the Qantas Revenue Management System project, targets were set around project milestones and realising project benefits.

Travel Entitlements An annual benefit of trips for these Executives and eligible beneficiaries during employment2, at no cost to the individual, as follows:

4 Long Haul 2 Long Haul 2 Long Haul 2 Long Haul 2 Long Haul 2 Long Haul

12 Short Haul 6 Short Haul 6 Short Haul 6 Short Haul 6 Short Haul 6 Short Haul

1 Executives are awarded Rights on a fair value basis. The face value equivalent for the 2015 grant is also provided.

2 These flights are not cumulative and will lapse if they are not used during the calendar year in which the entitlement arises.

3 Other than for misconduct or unsatisfactory performance.

Risk Management and Clawback Policy

The STIP and the LTIP have design elements that protect against the risk of unintended and unjustified pay outcomes, that is:

· Diversity in their performance measures, which as a suite of measures cannot be directly and imprudently influenced by one individual employee

· Clear maximum values specified for scorecard outcomes under the STIP and a challenging vesting scale under the LTIP

· Diversity of the timeframes within which performance is measured, with performance under the STIP being measured over one year and performance under the LTIP being measured over three years

· Deferral of a portion of awards under the STIP with a restriction period of two years providing an alignment with shareholder interests

· While formal Management shareholding requirements are not imposed, the CEO has a material holding in Qantas shares which at 30 June 2016 was valued at four times Base Pay. The potential equity awards under the STIP and the LTIP will assist Executives in maintaining shareholdings in Qantas

The following Clawback Policy applies in the event of serious misconduct or a material misstatement in Qantas’ Financial Statements. The Board may:

· Determine that an Executive forgo some or all awards otherwise due under the STIP

· Deem some or all STIP shares which are subject to the restriction period to be forfeited

· Cause some or all LTIP Rights which have not yet vested to lapse, and/or

· In the case of serious misconduct, cancel any post-employment benefits for the relevant employee(s) where possible

Employee Share Trading Policy

The Qantas Code of Conduct and Ethics contains Qantas’ Employee Share Trading Policy (Policy).

The Policy prohibits employees from dealing in Qantas securities (or securities of other listed entities) while in possession of material non-public information relevant to the entity.

In addition, nominated employees (including KMP) are:

· Prohibited from dealing in Qantas securities (or the securities of any Qantas Group listed entity) during defined closed periods

· Required to comply with ‘request to deal’ procedures prior to dealing in Qantas securities (or the securities of any Qantas Group listed entity) outside of defined closed periods

· Prohibited from hedging or entering into any margin lending arrangement, or entering into any other encumbrances over the securities of Qantas (or the securities of any Qantas Group listed entity) at any time

Remuneration Mix

The Base Pay and ‘At Target’ STIP and LTIP opportunities are set with reference to external benchmark market data including comparable roles in other listed Australian companies and international airlines. The ‘At Target’ STIP and LTIP opportunities for the CEO and KMP are detailed in the Summary of Key Contract Terms on page 43.

For 2014/2015 only, the Board changed the remuneration mix for the CEO and Executive Management to further align incentives with the immediate priorities of the transformation agenda.

This change in pay mix for that year involved a decrease in the STIP opportunity and an increase in the LTIP opportunity for each Executive. There was no increase to the total ‘At Target’ remuneration as a result of these changes as the increase in LTIP opportunity was offset by a decrease in STIP opportunity. The three year performance period of the 2015–2017 LTIP aligns with the timeframe for achieving the $2.1 billion program benefits due for completion by the end of 2016/2017. For 2015/2016 the remuneration mix for the CEO and Executive Management reverted to the original pay mix for the relevant role.

The ‘At Target’ STIP and LTIP awards are normally expressed as a percentage of Base Pay, however, for the purpose of the following chart, Base Pay, STIP and LTIP opportunities are expressed as a percentage of total ‘At Target’ pay.

The target remuneration mix does not match the statutory remuneration mix as:

· Actual STIP and LTIP outcomes each year differ from the ‘At Target’ level

· Statutory reward mix is calculated on an accrual basis in accordance with accounting standards, so each year’s statutory remuneration includes a portion of the value of share-based payments awarded in previous years. A portion of current year awards are also deferred over future periods where there are performance conditions or restriction periods

Target Remuneration Mix for 2015/2016 Statutory Remuneration Mix for 2015/2016

Performance-related Remuneration

CEO

Other

Executives

0% 20% 40% 60% 80% 100%

Base Pay STIP LTIP1

1. B ased on the value granted during the year, determined using the fair value of rights at start of the performance period.

Qantas Financial Performance History

To provide further context on Qantas’ performance, the following graphs outline a five year history of key financial metrics.

QANTAS THREE YEAR ROLLING TSR PERFORMANCE (%)

EARNINGS PER SHARE (CENTS)

-120

-100

-80

-60

-40

-20

0

20

40

2011

/

2012

/

2013

/

2014

/

2015

/

(10.8)

0.04

(128.5)

25.4

49.4

-50

%

0

%

50

%

100

%

150

%

200

%

/

2011

2012

/

2012

2013

/

2013

2014

2014

/

2015

2015

/

2016

(47

%

)

(39

%

)

(32

%

)

194

%

109

%

60

-140

2012 2013 2014 2015 2016

UNDERLYING PROFIT BEFORE TAX1 ($M)

2,000

-500

0

500

1

,000

1

,500

95

186

(646)

975

1,532

1

,250

1,500

1

,750

2

,000

2

,250

2

,500

2

,750

-1,000

2011/ 2012/ 2013/ 2014/ 2012 2013 2014 2015 OPERATING CASH FLOW ($M)

3,000

1,000

2011

/

2012

2012

/

2013

2013

/

2014

2014

/

2015

2015

/

2016

1,810

1,417

1,069

2,048

2,819

2015/ 2016

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1 Underlying Profit Before Tax (PBT) is the primary reporting measure used by the Qantas Group’s chief operating decision-making bodies, being the Chief Executive Officer, Group Management Committee and the Board of Directors, for the purpose of assessing the performance of the Group. Statutory Profit After Tax for 2015/2016 was $1,029 million (2015: $560 million, 2014: ($2.8) billion, 2013: $2 million and 2012: ($244) million).

8) PERFORMANCE-RELATED REMUNERATION

Performance Remuneration Affecting Future Periods

The fair value of share-based payments granted is amortised over the service period and therefore remuneration in respect of these awards may be reported in future years. The following table summarises the maximum value of these awards that will be reported in the statutory remuneration tables in future years, assuming all performance conditions are met. The minimum value of these awards is nil, should performance conditions not be satisfied.

Future Expense by Plan Future Expense by Financial Year

Deferred Shares

LTIP Awards

2014/2015 2015/2016 2015–2017 2016–2018 Total 2017 2018 2019 Total Executives $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Equity Instruments Held by Key Management Personnel

Set out in the following tables are the holdings of equity instruments granted as remuneration to the KMP by Qantas. Non-Executive Directors do not receive any remuneration in the form of share-based payments.

(i) Short Term Incentive Plan (STIP)

Number of Shares

1 Other changes include the impact of share consolidation, relating to return of capital to shareholders paid on 6 November 2015, through the conversion of each share into 0.939 shares.

One-third of the 2012/13 STIP awards (granted on 6 September 2013) were delivered to participants in deferred shares that are subject to a two year restriction period. The restriction period on these shares ended during 2015/2016.

One-third of the 2014/15 STIP awards (granted on 28 August 2015) were delivered to participants in deferred shares that are subject to a two year restriction period. The restriction period on these shares applied throughout 2015/2016.

(ii) Long Term Incentive Plan (LTIP)

Number of Rights

1 The share consolidation and return of capital to shareholders paid on 6 November 2015 did not apply to Rights granted under the LTIP.

2 The 30 June 2016 balance includes the Rights granted under the 2014–2016 LTIP which vested at 100 per cent and converted into shares following the performance hurdle testing conducted as at 30 June 2016 and the Board’s approval of the 2014–2016 LTIP vesting outcome on 23 August 2016 .

Rights under the 2016–2018 LTIP were granted on 23 October 2015 to Mr Joyce (following approval by shareholders at 2015 AGM) and 1 September 2015 for other Executives, and will be tested against the performance hurdles as at 30 June 2018. The number of Rights granted were determined using the fair value of a Right on 1 July 2015 of $1.795 per Right, being the start of the performance period. The fair value of a Right on the grant date was $2.46 per Right for Mr Joyce and $2.09 per Right for other Executives.

Rights under the 2015–2017 LTIP were granted on 24 October 2014 to Mr Joyce (following approval by shareholders at 2014 AGM) and 15 September 2014 for other Executives, and will be tested against the performance hurdles as at 30 June 2017. The number of Rights granted were determined using the fair value of a Right on 1 July 2014 of $0.785 per Right, being the start of the performance period. The fair value of a Right on the grant date was $0.970 per Right for Mr Joyce and $0.972 per Right for other Executives.

100 per cent of Rights under the 2014–2016 LTIP (granted on 18 October 2013) vested following the testing of performance hurdles as at 30 June 2016 and the Board’s approval of the 2014–2016 LTIP vesting outcome on 23 August 2016.

85 per cent of Rights under the 2013–2015 LTIP (granted on 2 November 2012 for Mr Joyce and other Executives) vested during the year following testing of the performance hurdles as at 30 June 2015. This outcome was included in the 2015 Remuneration Report.

(iii) Performance Share Plan (PSP)

Number of Shares

1 Other changes include the impact of share consolidation, relating to return of capital to shareholders paid on 6 November 2015, through the conversion of each share into 0.939 shares.

The above shares were awarded under legacy incentive plans and are vested and available to call.

(iv) Deferred Share Plan (DSP)

Number of Shares

1 Other changes include the impact of share consolidation, relating to return of capital to shareholders paid on 6 November 2015, through the conversion of each share into 0.939 shares.

The deferred shares were awarded to Mr David on 28 August 2014 as part of an equity incentive plan prior to commencing as a KMP and are subject to a restriction period until 31 December 2016.

(v) Equity Holdings and Transactions

KMPs or their related parties directly, indirectly or beneficially held shares in the Qantas Group as detailed in the table below:

Interest in Shares Commenced as Awarded as Rights Converted Other Interest in Shares Key Management Personnel – Executives 1 July 2015 KMP Remuneration1 to Shares Changes2 30 June 2016

1 Shares awarded under the 2014/15 STIP are subject to a restriction period until the 2016/2017 full year financial results, in August 2017.

2 Other changes include shares purchased, sold and the impact of share consolidation, relating to return of capital to shareholders paid on 6 November 2015, through the conversion of each share into 0.939 shares.

Other than share-based payment compensation, all equity instrument transactions between the KMP, including their related parties, and Qantas during the year have been on an arm’s length basis.

Loans and Other Transactions with Key Management Personnel

No KMP or their related parties held any loans from the Qantas Group during or at the end of the year ended 30 June 2016 or prior year.

A number of KMPs and their related parties have transactions with the Qantas Group. All transactions are conducted on normal commercial arm’s length terms.

9) NON-EXECUTIVE DIRECTOR FEES

Non-Executive Director fees are determined within an aggregate Non-Executive Directors’ fee pool limit. An annual total fee pool of $2.75 million (excluding industry standard travel entitlements received) was approved by shareholders at the 2013 AGM.

Total Non-Executive Directors’ remuneration (excluding industry standard travel entitlements received and other non-cash benefits) for the year ended 30 June 2016 was $2.11 million (2015: $1.99 million), which is within the approved annual fee pool.

Non-Executive Directors’ remuneration reflects the responsibilities of Non-Executive Directors. Fees are benchmarked against Non-Executive Director fees of S&P/ASX50 companies and revenue based peer groups.

The Board and Committee base fees were not increased during 2015/2016 and are presented in the table below.

For the period 1 January 2014 until 30 June 2015, all Directors forwent five per cent of both their base fee and Committee fee. This ceased on 1 July 2015.

Board Committees1

1 Committees are the Audit Committee, Remuneration Committee, Nominations Committee and Safety, Health, Environment and Security Committee.

2 The Chairman does not receive any additional fees for serving on or chairing any Board Committee.

Non-Executive Directors do not receive any performance-related remuneration.

Overseas-based Non-Executive Directors are paid a travel allowance when travelling on international journeys of greater than six hours to attend Board and Committee Meetings or Board-related activities requiring participation of all Directors.

All Non-Executive Directors and eligible beneficiaries receive travel entitlements. The Chairman is entitled to four long haul trips and 12 short haul trips each calendar year and all other Non-Executive Directors are entitled to two long haul trips and six short haul trips each calendar year. These flights are not cumulative and will lapse if they are not used during the calendar year in which the entitlement arises.

Post-employment, the Chairman is entitled to two long haul trips and six short haul trips for each year of service and all other NonExecutive Directors are entitled to one long haul trip and three short haul trips for each year of service. The accounting value of the travel benefit is captured in the remuneration table (as a non-cash benefit for travel during the year and as a post-employment benefit).

Remuneration for 2015/2016 – Non-Executive Directors

Short-term Employee Benefits Post-employment Benefits

1 Mr Goodmanson and Mr Meaney received travel allowances of $25,000 and $20,000 respectively during 2015/2016 (2015: $30,000 each for Mr Goodmanson and Mr Meaney). These amounts were included in their Base Pay (Cash).

2 2015/2016 remuneration reflects the period served by Mr L’Estrange as a Non-Executive Director from 7 April 2016 to 30 June 2016.

3 2014/2015 remuneration reflects the period served by Mr Sampson as a Non-Executive Director from 25 February 2015 to 30 June 2015.

Equity Holdings and Transactions

Non-Executive Director KMP or their related parties directly, indirectly or beneficially held shares in the Qantas Group as detailed in the table below:

Interest in Shares Commenced as Other Interest in Shares

Key Management Personnel – Non-Executive Directors as at 1 July 2015 KMP Changes1 as at 30 June 2016

1 Other changes include shares purchased, sold and the impact of the share consolidation relating to the return of capital to shareholders paid on 6 November 2015 with the conversion of each share into 0.939 shares.

All equity instrument transactions between the Non-Executive Director KMP, including their related parties, and Qantas during the year have been on an arm’s length basis.

ENVIRONMENTAL OBLIGATIONS

The Qantas Group’s operations are subject to a range of Commonwealth, State, Territory and international environmental legislation. The Qantas Group is committed to environmental sustainability with high standards for environmental performance. The Board places particular focus on the environmental aspects of its operations through the Safety, Health, Environment and Security Committee, which is responsible for monitoring compliance with these regulations and reporting to the Board.

The Directors are satisfied that adequate systems are in place for the management of the Qantas Group’s environmental exposures and environmental performance. The Directors are also satisfied that relevant licences and permits are held and that appropriate monitoring procedures are in place to ensure compliance with those licences and permits. Any significant environmental incidents are reported to the Board.

The Directors are not aware of any breaches of any environmental legislation or of any significant environmental incidents during the year which are material in nature.

INDEMNITIES AND INSURANCE

Under the Qantas Constitution, Qantas indemnifies, to the extent permitted by law, each Director and Company Secretary of Qantas against any liability incurred by that person as an officer of Qantas.

The Directors and the Company Secretaries listed on page 27 and individuals who formerly held any of these positions have the benefit of the indemnity in the Qantas Constitution. Members of Qantas’ Executive Management team and certain former members of the Executive Management team have the benefit of an indemnity to the fullest extent permitted by law and as approved by the Board. In respect to non-audit services, KPMG, Qantas’ auditor, has the benefit of an indemnity to the extent KPMG reasonably relies on information provided by Qantas which is false, misleading or incomplete. No amount has been paid under any of these indemnities during 2015/2016 or to the date of this Report.

Qantas has insured against amounts which it may be liable to pay on behalf of Directors and officers or which it otherwise agrees to pay by way of indemnity.

During the year, Qantas paid a premium for Directors’ and Officers’ liability insurance policies, which cover all Directors and officers of the Qantas Group. Details of the nature of the liabilities covered, and the amount of the premium paid in respect of the Directors’ and Officers’ insurance policies, are not disclosed, as disclosure is prohibited under the terms of the contracts.

NON-AUDIT SERVICES

During the year, Qantas’ auditor, KPMG, has performed certain other services in addition to its statutory duties. The Directors are satisfied that:

a. The non-audit services provided during 2015/2016 by KPMG as the external auditor were compatible with the general standard of independence for auditors imposed by the Corporations Act 2001

b. Any non-audit services provided during 2015/2016 by KPMG as the external auditor did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

· KPMG services have not involved partners or staff acting in a managerial or decision-making capacity within the Qantas Group or being involved in the processing or originating of transactions

· KPMG non-audit services have only been provided where Qantas is satisfied that the related function or process will not have a material bearing on the audit procedures

· KPMG partners and staff involved in the provision of non-audit services have not participated in associated approval or authorisation processes

· A description of all non-audit services undertaken by KPMG and the related fees has been reported to the Board to ensure complete transparency in relation to the services provided

· The declaration required by section 307C of the Corporations Act 2001 confirming independence has been received from KPMG A copy of the lead auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included on page 50.

Details of the amounts paid to KPMG for audit and non-audit services provided during the year are set out in Note 7 to the Financial Statements.

Rounding

Qantas is a company of a kind referred to in Australian Securities and Investments Commission (ASIC) Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. In accordance with that Instrument, amounts in this Directors’ Report and the Financial Report have been rounded to the nearest million dollars unless otherwise stated.

Signed pursuant to a Resolution of the Directors:

Leigh Clifford Alan Joyce

Chairman Chief Executive Officer

2 September 2016 2 September 2016

Directors’ Declaration 101

Independent Auditor’s Report 102

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Consolidated Income Statement

For the year ended 30 June 2016

Notes

The above Consolidated Income Statement should be read in conjunction with the accompanying notes.

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2016