RATIO ANALYSIS

Net capital expenditure of $1.97 billion included investment in replacement fleet such as the final payments and progress payments for the 787-9 Dreamliners for Qantas International, customer experience initiatives including lounge upgrades, the continuation of the Airbus A330 reconfiguration program and Wi-Fi installation on the Qantas Domestic fleet. Qantas generated $1.4 billion of net free cash flow in the period, an increase of $133 million from the prior year. This facilitated net debt reduction and returns to shareholders.

With reduced financial leverage and minimal near-term refinancing risk, the Group has continued to optimise the mix of liquidity with less requirement for short-term liquidity held in cash. The Group used $230 million cash in excess of its short-term requirements to purchase six 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 with minimal impact to net debt

· Greater fleet and maintenance planning flexibility

· Reduced exposure to US$ lease rentals

The Group enhanced the quality of the unencumbered pool of aircraft by adding five new 787-9s, bringing the total unencumbered aircraft to 61 per cent of the fleet with an approximate value of US$4.0 billion.[footnoteRef:20] [20: Based on AVAC market values. ]

Qantas continues to retain significant flexibility in its financial position, funding strategies and fleet plan to ensure that it can respond to changes in market conditions and earnings scenarios. At 30 June 2018, the Group’s leverage metrics were well within investment grade metrics (BBB/Baa) with FFO/net debt19 of 67 per cent and Debt/EBITDA20 of 2.0 times.

FLEET

The determination of the optimal fleet age for the Qantas Group balances a number of factors and varies by fleet type, including the availability of any new technology, the level of capacity growth required in the markets that it serves, the competitive landscape and whether the investment is earnings accretive.

At all times, the Group retains significant flexibility to respond to changes in market conditions and the competitive landscape by deploying number of strategies including fleet redeployment, refurbishment, renewal and retirement.

During the year, the Group continued to cross utilise the A330-200 and 737-800 aircraft between Qantas Domestic and Qantas International, optimising capacity to match demand. These aircraft were released from Qantas Domestic through capacity right sizing in the domestic market. At 30 June 2018, the Qantas Group fleet[footnoteRef:21] totalled 313 aircraft. During 2017/18, the Group acquired five 787-9s [21: Includes Qantas Airways, Jetstar Australia and New Zealand, Jetstar Asia, Qantas Freight and Network Aviation, and excludes aircraft operated by Jetstar Japan and Jetstar Pacific. ]

(Qantas International), retired one 747-400 (Qantas International) and transferred two A320-200 aircraft from Jetstar to QantasLink.

June June

Fleet Summary (Number of aircraft) 2018 2017

SEGMENT PERFORMANCE

June June

2018 2017 Change Change

Segment Performance Summary $M $M $M %

QANTAS DOMESTIC

Revenue Underlying EBIT Operating Margin 5,973 $M 768 $M 12.9 %

FY18 5,973 FY18 768

FY18

FY17

FY16

FY15

FY18

FY17

FY16

FY15

FY18

12.9

%

FY17

11.5

%

FY16

10.1

%

FY15

8.2

%

FY18

FY17

FY16

FY15

Qantas Domestic reported a record Underlying EBIT of $768 million, up 19.1 per cent from 2016/17. Qantas Domestic was able to offset fuel price increases as Unit Revenue increased by eight per cent compared to 2016/17 through continued capacity management discipline. Qantas Domestic maintained its leadership position in the corporate market while growing its share of the Small to Medium Enterprise (SME) market. During the year Qantas Domestic also benefited from the recovery of the resources market.

The dual brand strategy together with the benefits of transformation and investment in our customers continued to deliver leading margins in the Australian domestic market, with the operating margin for Qantas Domestic up 1.4 percentage points to 12.9 per cent.

Qantas Domestic continued to invest in customer experience delivering:

· >15 percentage points customer advocacy[footnoteRef:22] premium to competitor[footnoteRef:23] [22: Customer advocacy measured as Net Promoter Score (NPS). Based on Qantas internal reporting. ] [23: Competitor refers to Virgin Australia. Based on Qantas internal reporting. ]

· 84 per cent on-time performance[footnoteRef:24] [24: On time performance (OTP) of Qantas Domestic operations. Measured as departures within 15 minutes of scheduled departure time for FY18. Source: BITRE 26 New 787-9 deliveries as at 30 June 2018. ]

· More than half of the 737 fleet Wi-Fi equipped (improved Net Promotor Score (NPS) for in-flight entertainment on Wi-Fi equipped 737s); A330 Wi-Fi roll-out underway

· Improved offerings for regional travel through expansion of resident fares program and turboprop refurbishment – The new Melbourne Qantas Club and business lounge upgrades underway.

QANTAS INTERNATIONAL

Revenue Underlying EBIT Operating Margin 6,892 $M 399 $M 5.8 %

FY18 6,892 FY18 399 FY18 5.8%

FY18

FY17

FY16

FY15

FY18

FY17

FY16

FY15

FY18

FY17

FY16

FY15

Qantas International reported an Underlying EBIT of $399 million for 2017/18, up 6.7 per cent compared to 2016/17. Unit Revenue increased by 2.5 per cent in competitive market conditions while Qantas International maintained its strong operating margin in a rising fuel price environment.

Structural transformation continues to build earnings resilience with the introduction of the 789 Dreamliner to the fleet, successful launch of the direct Perth – London service in March 2018 and the completion of the Singapore hub switch creating increased network connectivity. Qantas International has ordered six additional Dreamliners, accelerating 747 retirements and is strengthening its customer proposition through extended partnerships and alliances.

Qantas International continued to invest in customer experience delivering:

— Higher customer advocacy23 on Dreamliner routes, including Perth – London

— New London and Perth transit hub lounges opened

— First five 787-9s delivered,26 enabling new network opportunities, cost efficiencies and yield premium.

JETSTAR GROUP

Revenue Underlying EBIT Operating Margin $M $M %

3,767 461 12.2

FY18 3,767 FY18 461 FY18 12.2%

FY18

FY17

FY16

FY15

FY18

FY17

FY16

FY15

FY18

FY17

FY16

FY15

The Jetstar Group reported Underlying EBIT of $461 million, a record result in an increasing fuel price environment. Jetstar Domestic delivered record earnings of $311 million with Unit Revenue up five per cent driven by a three per cent seat factor improvement on a one per cent capacity reduction. Jetstar International[footnoteRef:25] had strong earnings with ROIC>WACC whilst all Jetstar’s branded airlines in Asia[footnoteRef:26] were profitable. Jetstar Japan maintained its domestic Low Cost Carrier (LCC) leadership position,[footnoteRef:27] Jetstar Pacific improved its domestic position as capacity discipline returned to the market and Jetstar Asia contributed to benefits from the Singapore hub switch. [25: Includes Jetstar International Australian operations and Jetstar New Zealand (including Jetstar regionals). ] [26: Includes Jetstar Asia (Singapore), Jetstar Japan and Jetstar Pacific (Vietnam). ] [27: Measured as percentage of market share for FY18. Source: Diio Mi. ]

Jetstar continued its investment in digital transformation and customer experience delivering:

— Cabin Enhancement Program for A320/321 retrofit progressed with improved NPS for completed aircraft[footnoteRef:28] [28: Compared to aircraft with equivalent seat pitch. ]

— Club Jetstar continued growth with more than 250,000 members[footnoteRef:29] [29: Members as at August 2018. ]

— Investing in innovation and digital capability to personalise the customer experience and drive ancillary margin growth.

QANTAS LOYALTY

Revenue Underlying EBIT Operating Margin

$M

1,546 372 $M 24.1 %

FY18 1,546 FY18 372

FY18

FY17

FY16

FY15

FY18

24.1

%

FY17

24.5

%

FY16

23.8

%

FY15

23.1

%

FY18

FY17

FY16

FY15

Qantas Loyalty reported another record result with Underlying EBIT of $372 million, up one per cent compared to 2016/17. The strategy to mitigate interchange fee regulatory change was on track during this transition year.

Coalition Business fundamentals continue to strengthen with:

· Co-branded credit card growth outpacing the market[footnoteRef:30] [30: Based on the number of credit card accounts with interest-free periods. Market growth calculated excluding Qantas’ contribution to market based on June 2018 compared to June 2017. Source: RBA credit and card charges statistics. ]

· Strengthening the Woolworths’ proposition, first full year of the new program

· Growth in everyday earn partners, successful launch of Red Energy

· Expanding member redemption options including enhanced access to air, hotel and point of sale – Qantas Classic International redemptions up 10 per cent.[footnoteRef:31] [31: Compared to 2016/17. ]

Qantas Business Rewards membership and partner growth supported the airline SME share growth strategy. Qantas Travel Money[footnoteRef:32] increased its customer value proposition and was awarded a 5 star Canstar rating. New businesses remain on track with Qantas Insurance[footnoteRef:33] moving into scale up phase and the successful launch of the Qantas Premier Everyday Card. [32: Previously Qantas Cash. ] [33: Previously Qantas Assure. ]

RECONCILIATION OF UNDERLYING PBT TO STATUTORY PROFIT BEFORE TAX

The Statutory Profit Before Tax of $1,391 million for 2017/18 was $210 million higher than the previous year.

Underlying PBT

Underlying PBT is the primary reporting measure used by the Qantas Group’s Chief Operating Decision-Making bodies (CODM), being the

Chief Executive Officer, Group Management Committee and the Board of Directors, for the purpose of assessing the performance of the Group. The primary reporting measure of the Qantas International, Qantas Domestic, Jetstar Group and Qantas Loyalty operating segments is Underlying EBIT. The primary reporting measure of the Corporate segment is Underlying PBT as net finance costs are managed centrally.

Items which are identified by Management and reported to the CODM as not representing the underlying performance of the business are not included in Underlying PBT. The determination of these items is made after consideration of their nature and materiality and is applied consistently from period to period.

Items not included in Underlying PBT primarily result from costs relating to major transformational/restructuring initiatives, gains/(losses) on transactions involving investments, impairments of assets and other transactions outside the ordinary course of business.

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 Group’s focus is on continuously improving the controls to manage or mitigate these risks as the nature of these risks and the risk landscape for the Qantas Group has not materially changed compared with the previous year. The Qantas Group continues to operate in a domestic and international environment where elevated political risk for the business will be the norm. The increased level of unpredictability makes it imperative that the Group continues to plan for wide ranges of scenarios and risks to ensure its robustness.

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

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 2018/19, the Group's hedging profile is positioned such that 2018/19 fuel costs are expected to be $3.92[footnoteRef:34] billion with an average 54 per cent participation rate[footnoteRef:35] to lower fuel prices. Fuel price is 73 per cent hedged for the remainder of 2018/19. Complementing the hedging program, increased focus on forecasting and the operational agility of our aviation operations are supporting the Group to manage the residual uncertainty. [34: As at 20 August 2018. This assumes forward market rates of Jet Fuel US$85.80 per barrel and AUD/USD 0.7317. 2018/19 fuel cost could be impacted by a breakdown in correlation or by increases in refining margins. ] [35: As at 20 August 2018. Participation from current market Brent prices down US$10 per barrel for the remainder of 2018/19. ]

Cyber security and data governance: The cyber security and data environment is continuously evolving. Qantas remains focused on further strengthening its governance, processes and technology controls to continue to protect the integrity and privacy of data and maintain compliance with regulatory requirements. The Qantas Group's ongoing investment in cyber transformation initiatives, together with its extensive Control and Risk Framework,[footnoteRef:36] operate to reduce the likelihood of cyber security and data privacy incidents, assisting with the early detection and mitigation of impact. Given the nature of this risk, the appropriateness of the controls is continuously reviewed by the Group Cyber and Privacy Committee and is subject to independent assurance on a periodic basis. [36: An overview of the Group Risk Management Framework is contained in the Qantas Group Business Practices Document available 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.

Climate change: The Qantas Group is subject to short-term and long-term climate-related physical and transition risks. These risks are an inherent part of the operations of an airline and are managed by strengthening governance, technology, operational and market-based controls, including proactive consideration of how changing factors (including global climate policies) impact the proximity of climaterelated risks. The Qantas Group is responding to increased demand for transparency on identification and management of climate-related risks by aligning its 2017/18 corporate disclosures with the Taskforce on Climate-Related Financial Disclosures (TCFD), a summary table for which can be found on the Qantas Group corporate site.

QANTAS ANNUAL REPORT 2018

Review of Operations continued

For the year ended 30 June 2018

QANTAS ANNUAL REPORT 2018

Review of Operations continued

For the year ended 30 June 2018

QANTAS ANNUAL REPORT 2018

Review of Operations continued

For the year ended 30 June 2018

10

10

11

Corporate Governance Statement

QANTAS ANNUAL REPORT 2018

QANTAS ANNUAL REPORT 2018

Directors’ Report

QANTAS ANNUAL REPORT 2018

20

20

21

For the year ended 30 June 2018

OVERVIEW

Corporate governance is core to ensuring the creation, protection and enhancement of shareholder value. The Board maintains, and requires that Qantas Management (Management) maintains, the highest level of corporate ethics.

The Board comprises a majority of Independent Non-Executive Directors who, together with the Executive Director, have an appropriate balance of skills, knowledge, experience, independence and diversity to enable the Board as a collective to effectively discharge its responsibilities.

The Board endorses the ASX Corporate Governance Principles and Recommendations, 3rd Edition (ASX Principles).

Accordingly, Qantas Airways Limited has disclosed its 2018 Corporate Governance Statement in the Corporate Governance section on the Qantas website. 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.

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 eleven Directors. Ten Directors are Independent Non-Executive Directors elected by shareholders. The Qantas CEO, who is an Executive Director, is not regarded as independent.

Details of the current Directors, their qualifications, skills, experience and tenure are set out on pages 8 to 11 of the Qantas Annual Report 2018.

The Board has four committees: – Audit Committee

· Nominations Committee

· Remuneration Committee

· Safety, Health, Environment and Security Committee

Each of these committees assists the Board with specified responsibilities that are set out in the Committee Charters, as delegated and approved by the Board.

Membership of and attendance at 2017/18 Board and Committee meetings is detailed on page 23 of the Qantas Annual Report 2018.

THE BOARD PROMOTES ETHICAL AND RESPONSIBLE DECISIONMAKING

The Board has established a corporate governance framework, comprising Non-Negotiable Business Principles (Principles) and Group Policies, which forms the foundation for the way in which the Qantas Group undertakes business. The Principles and Group Policies, including the Qantas Group Code of Conduct and Ethics, are detailed in the Qantas Group Business Practices document. This framework is supported by a rigorous Whistleblower Program, which provides a protected disclosure process for all reporting persons.

The Qantas Group Employee Share Trading Policy sets out guidelines designed to protect the Qantas Group Directors and its employees from intentionally or unintentionally breaching the law. The Qantas Group Employee Share Trading Policy prohibits employees from dealing in the securities of any Qantas Group listed entity while in possession of material non-public information.

In addition, certain nominated Qantas employees are also prohibited from entering into any hedging or margin lending arrangement or otherwise granting a charge over the securities of any Qantas Group listed or unlisted entity, where control of any sale process relating to those securities may be lost.

For the year ended 30 June 2018

THE BOARD SAFEGUARDS THE INTEGRITY OF CORPORATE FINANCIAL REPORTING

The Board and the Audit Committee closely monitor the independence of the external auditor. Regular reviews occur of the independence safeguards put in place by the external auditor. Qantas rotates the lead external audit partner every five years and imposes restrictions on the employment of personnel previously employed by the external auditor. Qantas last rotated its lead external audit partner during the 2016/17 year.

Policies are in place to restrict the type of non-audit services which can be provided by the external auditor and a detailed review of non-audit fees paid to the external auditor is undertaken on a half-yearly basis.

At each meeting, the Audit Committee meets privately with Executive Management without the external auditor, and with the internal and external auditors without Executive Management.

THE BOARD MAKES TIMELY AND BALANCED DISCLOSURE

Qantas is committed to ensuring that trading in its shares takes place in an orderly and informed market, by having transparent and consistent communication with all shareholders. Qantas has an established process to ensure that it complies with its continuous disclosure obligations at all times, including a biannual confirmation by all Executive Management that the areas for which they are responsible have complied with the Group’s Continuous Disclosure Policy.

Qantas proactively communicates with its shareholders via the ASX and its web-based Newsroom, with all materials released by the Group being made available to all shareholders at the same time. Additionally, Qantas 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 2017/18, 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 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 27 to 48 of the Qantas Annual Report 2018.

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 performancebased remuneration (see pages 47 to 48 of the Qantas Annual Report 2018).

For the year ended 30 June 2018

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

30 June 2018. In compliance with the provisions of the Corporations Act 2001, the Directors’ Report is set out below.

DIRECTORS

The Directors of Qantas during the year were:

Leigh Clifford AO

Alan Joyce AC

Maxine Brenner

Richard Goodmanson

Richard Goyder AO (appointed 17 November 2017)

Jacqueline Hey

Belinda Hutchinson AM (appointed 12 April 2018)

Michael L’Estrange AO

Paul Rayner

Todd Sampson

Barbara Ward AM

William Meaney (retired 29 June 2018)

Details of the Directors’ 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 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 AND OTHER SHAREHOLDER DISTRIBUTIONS

The Directors declared a final dividend of $168 million (10.0 cents per ordinary share) for the year ended 30 June 2018 (2017: 7.0 cents per share).

The final dividend will be franked and follows an unfranked interim dividend of $122 million (7.0 cents per ordinary share), which was paid during the year.

In addition, the Directors announced an on-market share buyback of up to $332 million. During the year ended 30 June 2018, the Group completed the on-market share buy-back of $373 million, which was announced in August 2017, and the on-market share buy-back of $378 million announced in February 2018.

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 page 85 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 Qantas Group’s financial position appear on pages 12 to 19.

Details of 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 their inclusion is 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 85 for events which occurred subsequent to balance date. Other than the matters disclosed on page 85, 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) and attendance of Directors during 2017/2018 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 Goyder was appointed as a Director on 17 November 2017 and as a Member of the Audit Committee on 11 April 2018.

6. Ms Hutchinson was appointed as a Director on 12 April 2018.

7. Mr Meaney retired as a Director on 29 June 2018.

DIRECTORSHIPS OF LISTED COMPANIES HELD BY MEMBERS OF THE BOARD AS AT 30 JUNE 2018 – FOR THE PERIOD 1 JULY 2015 TO 30 JUNE 2018

DIRECTORSHIPS OF LISTED COMPANIES HELD BY MEMBERS OF THE BOARD AS AT 30 JUNE 2018 – FOR THE PERIOD 1 JULY 2015 TO 30 JUNE 2018, (CONTINUED)

1. Responsible entity for the Brookfield Prime Property Fund and the Multiplex European Property Fund, both of which were listed Australian registered managed investment schemes until they delisted on 3 July 2017 and 17 September 2015 respectively.

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 2018

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

Directors 2018 20171

1. As at 15 September 2017.

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

Number of Shares

2018

2017

Deferred shares held in trust under:

1. The deferred shares under the 2017/18 Short Term Incentive Plan were awarded to Mr Joyce following the release of the 2017/2018 full-year financial results.

Number of Rights

2018 2017

1. Following the testing of performance hurdles as at 30 June 2018 and the Board’s approval of the 2016–2018 Long Term Incentive Plan (LTIP) vesting outcome on 22 August 2018, 100 per cent of the 2016–2018 LTIP Rights awarded to Mr Joyce on 23 October 2015 vested and converted to 947,000 shares after the release of the 2017/2018 full-year financial results.

2. Shareholders approved the award of these Rights on 21 October 2016. Performance hurdles will be tested as at 30 June 2019 to determine whether any Rights vest to Mr Joyce.

3. Shareholders approved the award of these Rights on 27 October 2017. Performance hurdles will be tested as at 30 June 2020 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 34 to 37 for further details.

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

Number of Rights

Performance Rights Reconciliation 2018 2017

1. The movement of Rights outstanding as at 30 June 2018 to the date of this Report is explained in the footnotes on page 26.

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 2018:

Number of Rights

Value at 2018 2017

Grant Net 2018 2018 Net 2017 2017

Name Testing Period Grant Date Date Vested Unvested Total Vested Unvested Total

1. Following the testing of performance hurdles as at 30 June 2017 and the Board’s approval of the 2015–2017 vesting outcome on 24 August 2017, 100 per cent of Rights vested and converted to shares after the release of the 2016/2017 full-year financial results.

2. Following the testing of performance hurdles as at 30 June 2018 and the Board’s approval of the 2016–2018 vesting outcome on 22 August 2018, 100 per cent of Rights vested and converted to shares after the release of the 2017/2018 full-year financial results.

REMUNERATION REPORT

Cover letter to the Remuneration Report 27

1 Remuneration Report Summary 28

2 Remuneration Outcomes for 2017/2018 32

3 Statutory Remuneration Disclosures for 2017/2018 33

4 Executive Remuneration Structure 34

5 Annual Incentive Outcome 2017/2018 STIP 38

6 Long Term Incentive Outcome 2016-2018 LTIP 41

7 Changes to the Remuneration Framework for 2017/2018 41

8 Remuneration Governance 42

9 Equity Instruments 44

10 Non-Executive Director Fees 47

QANTAS ANNUAL REPORT 2018

Directors’ Report continued

For the year ended 30 June 2018

QANTAS ANNUAL REPORT 2018

Directors’ Report continued

For the year ended 30 June 2018

QANTAS ANNUAL REPORT 2018

Directors’ Report continued

For the year ended 30 June 2018

11

20

11

1 Calculated as ROIC EBIT for the 12 months ended 30 June 2018, divided by the 12 months Average Invested Capital.

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

continued

For the year ended 30 June 2018

REMUNERATION REPORT (AUDITED) (CONTINUED)

1 REMUNERATION REPORT SUMMARY

The 2017/2018 remuneration outcomes under the Qantas Executive Remuneration Framework are summarised as follows: BASE PAY OUTCOMES FOR 2017/2018

The CEO’s Base Pay remained unchanged (and has not increased since July 2011).

Mr La Spina and Mr David received Base Pay increases, their first increase since being appointed to their respective roles in March 2015. On commencing in their roles, both Mr La Spina’s and Mr David’s Base Pay was set below the market median for comparable roles in peer group companies and lower than the Base Pay of their predecessors. Following more than 2 years of strong performance in their respective roles, their Base Pay was realigned closer to market median of comparable roles in ASX50 and revenue peer companies.

The same approach to setting Base Pay has been applied for Ms Webster, who was appointed to the role of CEO Qantas International on 1 November 2017. Ms Webster’s Base Pay was set at a level below her predecessor and having regard to comparable roles in peer group companies.

A more detailed description is provided on page 34. Base Pay for each Executive Management is provided on page 43.

ANNUAL INCENTIVE PLAN OUTCOMES FOR 2017/2018

28

LONG TERM INCENTIVE PLAN OUTCOMES FOR 2017/2018

QANTAS ANNUAL REPORT 2018

Directors’ Report continued

For the year ended 30 June 2018

REMUNERATION REPORT (AUDITED)

QANTAS ANNUAL REPORT 2018

Directors’ Report

QANTAS ANNUAL REPORT 2018

Directors’ Report continued

For the year ended 30 June 2018

REMUNERATION REPORT (AUDITED) (CONTINUED)

11

11

REMUNERATION OUTCOMES FOR THE CEO IN 2017/2018

CHANGES TO THE REMUNERATION FRAMEWORK FOR 2017/2018

REMUNERATION REPORT FOR 2017/2018

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 Key Management Personnel (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.

2 REMUNERATION OUTCOMES FOR 2017/2018

The following table summarises the remuneration decisions and outcomes for the CEO and Executive KMP for the year ended 30 June 2018. The remuneration detailed in this table is aligned to the current year performance and is therefore particularly useful in understanding current year pay and its alignment with performance.

Remuneration Outcomes Table – CEO and Executive KMP1

1. Detail of non-statutory remuneration methodology is explained on pages 35 and 37.

2. Base Pay (cash) is Base Pay less superannuation contributions. (Superannuation is reported in ‘Other Benefits’.)

3. The full value of STIP awards made to each Executive during each of the 2017/2018 and 2016/2017 financial years is calculated by adding the STIP Cash Bonus and the STIP Deferred Award.

4. LTIP awards vested in 2017/2018 at 100%. LTIP awards vested in 2016/2017 at 100%.

5. The number of Rights vested multiplied by the Qantas share price at 30 June 2015, as at the start of the performance period (2017: 30 June 2014).

6. Other Benefits are detailed on page 33.

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 3-year performance period ended 30 June 2018 (2017: 1 July 2014 to 30 June 2017).

8. Mr Evans ceased in the role of CEO International on 31 October 2017 and was appointed to the role of CEO Jetstar Group on 1 November 2017.

9. 2017/2018 remuneration reflects the full year remuneration for Ms Grant, Ms Webster and Ms Wirth. This differs to the Statutory Remuneration disclosure which includes only the remuneration for the period of time in a key management role for Ms Grant (1 July 2017 to 31 October 2017), Ms Webster (1 November 2017 to 30 June 2018) and Ms Wirth (12 February 2018 to 30 June 2018).

Ms Hrdlicka resigned during 2017/2018 and ceased as a KMP on 11 February 2018. Treatment on termination under the STIP and LTIP (consistent with the terms and conditions of those plans) was as follows:

· No award made under the 2017/18 STIP award;

· 247,919 restricted STIP shares (awarded under the 2015/16 STIP and 2016/17 STIP) were forfeited; and – 809,500 Rights (awarded under the 2016-2018 LTIP, 2017-2019 LTIP and 2018-2020 LTIP) lapsed.

Pages 34 to 42 of the Remuneration Report describe the Executive Remuneration Structure and provide an analysis of the 2017/2018 outcomes for the STIP and LTIP.

3 STATUTORY REMUNERATION DISCLOSURES FOR 2017/2018

The statutory remuneration disclosures for the year ended 30 June 2018 are detailed below. These are prepared in accordance with Australian Accounting Standards and differ from the 2017/2018 remuneration outcomes on page 32. 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

Equity-settled

Share-based Payments

Other

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

2. Base Pay (cash) is Base Pay less superannuation contributions. (Superannuation is reported in ‘Post-employment Benefits’)

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 $35,000 for Mr Joyce and $26,000 for each other Executive (2017: $34,000 for Mr Joyce and $24,000 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 current year.

6. Mr Evans ceased in the role of CEO International on 31 October 2017 and was appointed to the role of CEO Jetstar Group on 1 November 2017.

7. 2017/2018 remuneration reflects the period of time in a key management role for Ms Grant (1 July 2017 to 31 October 2017), Ms Webster (1 November 2017 to 30 June 2018) and Ms Wirth (12 February 2018 to 30 June 2018).

8. Ms Hrdlicka resigned during 2017/2018 and ceased as a KMP on 11 February 2018. Treatment on termination under the STIP and LTIP (consistent with the terms and conditions of those plans) was as follows:

· No award made under the 2017/18 STIP award;

· Restricted STIP shares (awarded under the 2015/16 STIP and 2016/17 STIP) were forfeited; and – Rights (awarded under the 2016-2018 LTIP, 2017-2019 LTIP and 2018-2020 LTIP) lapsed.

A reconciliation of the CEO’s remuneration outcome to the statutory disclosures is detailed below as an example.

CEO’s Statutory Remuneration Disclosure to Remuneration Outcome for 2017/2018

Reconciliation ($’000s) Description

1. The 2016–2018 LTIP was tested as at 30 June 2018. 100% of Rights vested.

2. The number of Rights vested multiplied by the Qantas share price at the start of the performance period ($3.16 on 30 June 2015).

3. The number of Rights vested multiplied by the increase in the Qantas share price over the 3-year performance period (an increase of $3.00 from $3.16 on 30 June 2015 to the $6.16 on 30 June 2018).

4 EXECUTIVE REMUNERATION STRUCTURE

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 as it applies to the CEO and Executive Management contains three elements summarised below:

In performing a Base Pay review, the Board makes reference to external market data including comparable roles in other listed Australian companies and international airlines. Remuneration is benchmarked against ASX50 companies and a revenue-based peer group of other listed Australian companies. The Board believes these are the appropriate benchmarks, as these are the comparator groups whose roles best mirror the size, complexity and challenges in managing Qantas’ businesses and are also the peer groups with whom Qantas competes for executive talent.

There have been no increases to the Base Pay for Mr Joyce (since July 2011) or Ms Grant during 2017/2018.

Mr La Spina and Mr David received Base Pay increases from $850,000 to $1,000,000 on 1 November 2017, their first increase since being appointed to their respective roles in March 2015. On commencing in their roles, both Mr La Spina’s and Mr David’s Base Pay was set below the market median for comparable roles in peer group companies and lower than the Base Pay of their predecessors. Following more than 2 years of strong performance in their respective roles, their Base Pay was realigned closer to market median.

Ms Webster and Ms Wirth commenced in their KMP roles on 1 November 2017 and 12 February 2018 respectively and their Base Pay was set at a level below their predecessors and having regard to comparable roles in peer group companies.

The Base Pay for Mr Evans increased by 3% to $1,060,000.

The Base Pay for each Executive KMP is outlined on page 43.

Board Discretion The Board retains discretion over any awards made under the STIP.

While the Board sees the STIP Scorecard approach as an important design element of the STIP, it also recognises that remuneration outcomes must be considered in the context of the Group’s financial performance, overall business performance and the operating environment. Circumstances may occur where scorecard measures have been achieved or exceeded, but in the view of the Board it is more appropriate to make no award under the STIP or to deliver a higher proportion of an award in Qantas shares.

Therefore, each year the Board considers whether to apply its discretion. The Board may determine that:

· no award be made (as it did in 2011/2012 and 2013/2014)

· only a partial award be made (as it did in 2010/2011 and 2012/2013)

· any award will be entirely deferred and/or delivered in Qantas shares (as it did in 2010/2011)

· a higher proportion of the award be made in Qantas shares (as it did in 2016/2017)

On the other hand, there may be circumstances where performance is below an agreed target where the Board may determine that it is appropriate to pay some STIP award. This circumstance has not occurred.

STIP Awards

STIP

= Award

QANTAS ANNUAL REPORT 2018

Directors’ Report continued

For the year ended 30 June 2018

REMUNERATION REPORT (AUDITED) (CONTINUED)

QANTAS ANNUAL REPORT 2018

Directors’ Report continued

For the year ended 30 June 2018

REMUNERATION REPORT (AUDITED) (CONTINUED)

QANTAS ANNUAL REPORT 2018

Directors’ Report continued

For the year ended 30 June 2018

REMUNERATION REPORT (AUDITED) (CONTINUED)

10

10

11

Long Term Incentive Plan (LTIP)

The LTIP involves the granting of Rights over Qantas shares. If the 3-year performance and service conditions are satisfied, the Rights vest and convert to Qantas shares on a one-for-one basis. If the 3-year performance conditions are not met, the Rights lapse.

Cessation of Employment

In general, any Rights which have not vested are forfeited if the Executive ceases employment with the Qantas Group.

Allocation Methodology

Allocation Methodology Used in 2017/2018 Award to the CEO

Change of Control

Disclosure

The number of Rights granted to the CEO and Executive Management under the LTIP is calculated on a face value basis.

The ‘Target’ LTIP opportunity for the CEO and other Executive KMP is provided on a face value basis in the Summary of Key Contract Terms on page 43.

Prior to 1 July 2017, a fair value methodology was used to determine the number of Rights awarded to the CEO and Executive Management.

At each year’s AGM, Qantas seeks shareholder approval for any award of Rights to the CEO. At the 2017 AGM, Shareholders approved an award of 687,000 Rights to the CEO (under the 2018–2020 LTIP).

The Notice of Meeting for the 2017 AGM set out the proposed number of LTIP Rights to be granted to the CEO on a face value basis as follows:

Number of Rights awarded =

687,000 Rights awarded1 =

1. Being the maximum number of Rights that may vest and convert to shares.

In the event of a change of control, the Board determines whether the LTIP Rights vest or otherwise.

The LTIP vesting amount shown in the Remuneration Outcomes Tables on page 32 is equal to the number of Rights vested, multiplied by the Qantas share price at the start of the performance period.

The LTIP share price growth amount shown in the Remuneration Outcome Table on page 32 is equal to the number of Rights vested, multiplied by the increase in the Qantas share price over the 3-year performance period.

The statutory remuneration disclosure amortises the accounting value of LTIP awards over the relevant performance and service period as per the accounting standards. The accounting value for the LTIP awards do not have regard to whether performance conditions were achieved.

Other Benefits

Non-cash Non-cash benefits, as disclosed in the remuneration tables, include travel entitlements while employed and other Benefits minor benefits.

Travel Travel concessions are provided to permanent Qantas employees, consistent with practice in the airline industry.

Travel at concessionary prices is on a sub-load basis; that is, subject to considerable restrictions and limits on availability. The policy includes specified direct family members or a nominated travel companion.

In addition to this and consistent with practice in the airline industry, the CEO and Executive Management and their eligible beneficiaries are entitled to a number of trips for personal purposes at no cost to the individual.

Post-employment travel concessions are also available to all permanent Qantas employees who qualify by achieving a service condition. The CEO and Executive Management and their eligible beneficiaries are also entitled to a number of free trips for personal purposes after ceasing employment. An estimated present value of these entitlements accrues over the service period of the individual and is disclosed as a post-employment benefit.

Superannuation Superannuation includes statutory and salary sacrifice superannuation contributions and is disclosed as a postemployment benefit.

5 ANNUAL INCENTIVE OUTCOME 2017/2018 STIP

For 2017/2018, the Board considered the following key measures of financial, safety, customer and operational performance and the associated targets to be key 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 2017/18 STIP.

Group Underlying Profit 50% The Underlying PBT result of $1,604 million for 2017/2018 exceeded Profitability Before Tax (PBT) (0-100%) the target, but was less than the maximum ‘overdrive’ target set by the Board.

Therefore, this measure contributed an above target (but less than maximum) outcome to the STIP Scorecard.

Profit Margin in Combined Qantas 10% Combined Qantas Domestic and Jetstar Domestic Profit Margin target the Australian Domestic and Jetstar (0-15%) was exceeded and resulted in a maximum contribution to the STIP

People and People Safety 15% Targeted improvements in People Safety metrics were partially Operational measures (0-22.5%) achieved.

Safety Board’s assessment of Operational Safety performance for the year was good. Therefore, Operational Safety there was a full contribution under the Operational Safety measure.

Customer Net Promoter Score 15% Target or threshold NPS performance was achieved by Qantas

(NPS) (0-22.5%) International, Qantas Domestic, QantasLink and Jetstar Australia

Growth, Transformation 10% Executive Management’s continued focus on transformation

Transformation benefits (0-15%) delivered $463 million of benefits during 2017/2018, exceeding the and Projects Jetstar Japan $400 million target.

KEY: Above target achievement Full achievement against targets Partial achievement against targets No achievement against targets

Annual Incentive – Board’s Assessment of Executive Management’s Contribution to the 2017/18 STIP Outcome:

In determining outcomes under the 2017/18 STIP, the Board assessed performance against financial, safety and other key business measures as part of a balanced scorecard, as outlined on page 38, as well as determining individual contribution (via the IPF).

The Board also considered how the CEO and Executive Management contributed to these results, in particular:

Maximising our leading domestic position through the dual brand strategy:

· Growing margins and maintaining advantage to competitors

· Sophisticated, disciplined approach to managing capacity to optimise earnings

· Enhancing distribution via the Qantas Distribution Platform

· Jetstar driving direct sales (via Jetstar.com) and ancillary revenue growth, while maintaining commitment to low fares – Cost control and driving of operational efficiency

Building a more resilient Qantas International:

· Fleet renewal commenced with the introduction of the 789 Dreamliners, delivering higher customer advocacy (NPS) on Dreamliner routes and facilitating the retirement of the Boeing 747 aircraft

· Network and Hub evolution, with London flight hubs through Singapore and Perth (with the introduction of the direct Perth-London route), increased wide-body services on the Tasman and shifting capacity to high growth markets in Asia

· Continued expansion of international network through partnerships, including expanded and new codeshares with Alaskan, Air France-KLM and Cathay Pacific

· Renewing the Emirates alliance for a further five years

Diversification and Growth at Qantas Loyalty:

· In a transition year, achieved another record profit, offsetting the impact of changes to bank interchange fees

· Through on boarding new Retail Partners, providing members with enhanced options to earn in everyday spend categories – Diversification of earnings through growth in new businesses: market leading growth of Qantas Insurance

· Launching new products in financial services

· Leveraging data and marketing capabilities to drive Group outcomes, including the development and launch of personalisation capabilities

· Qantas Business Rewards member and partner growth supporting airline SME share growth

Investing in Customer, Brand and Digital, driving improved NPS:

· Continued roll-out of free Wi-Fi on Qantas Domestic fleet

· Investment in digital customer experience

· New London and Perth lounges

· Jetstar cabin enhancement roll-out on A320/A321 fleet

Meeting objectives of the Financial Framework:

· ROIC of 22%, with all operating segments delivering ROIC>WACC

· Net debt reduced to $4.9 billion, providing significant financial flexibility

· Record operating cash flow of $3.4 billion

· $1 billion returned to shareholders through dividends and on market buy backs

· Approach to fuel hedging contained 2017/2018 fuel cost increase to $193m or 6%, while USD Jet prices increased on average ~25% compared to prior year

· Increased the duration of our debt book and reduced refinancing risk via a unique platform using mid-life aircraft as security. The first tranche was successfully executed in December 2017

· Delivery of $463 million of transformation benefits in 2017/2018, exceeding the $400m target

Additional Descriptions of 2017/18 STIP Scorecard Measures

Group Underlying PBT is the primary financial performance measure for the Qantas Group and is therefore the primary Profitability performance measure under the STIP. The objective of measuring and reporting Underlying PBT is to provide a meaningful and consistent representation of the underlying performance of the Group. The Underlying PBT target is based on the annual financial budget. For reasons of commercial sensitivity, the annual Underlying PBT target is not disclosed.

Underlying PBT is derived by adjusting Statutory PBT for the impacts of derivative mark-to-market movements that relate to other reporting periods and items which are identified by Executive Management and reported to the chief operating decision-making bodies, as not representing the underlying performance of the business. 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, impairment of assets and other transactions outside the ordinary course of business.

Profit Margin in Maintaining a market-leading Australian Domestic profit margin is core to Qantas’ success. Therefore, a combined the Australian Qantas Domestic and Jetstar Domestic Profit Margin measured as EBIT per ASK was selected as a STIP Scorecard Domestic Market measure. This focuses on profitability irrespective of capacity levels.

6 LONG TERM INCENTIVE OUTCOME 2016-2018 LTIP

Executive Management continues to deliver on commitments made to shareholders. The structural changes to the Company and ongoing focus on transformation have delivered strong earnings across the portfolio of businesses. The Financial Framework continues to provide balance sheet strength and sustainable returns to shareholders. The business is responding to emerging global forces and strategic priorities are clear.

These achievements have been recognised via continued share price appreciation. For the 2016-2018 LTIP, the Qantas share price grew from $3.16 at 30 June 2015 to $6.16 at 30 June 2018, and together with dividends paid to shareholders delivered a TSR performance of +107%.

The 3-year performance measures under the 2016–2018 LTIP are Qantas’ TSR compared to:

− Companies with ordinary shares included in the ASX100

− Global Listed Airlines

Qantas’ TSR performance over the past 3 years ranked in the top quartile of companies in the ASX100, and top quartile of companies in the Global Listed Airlines peer group. Based on this performance, 100% of Rights vested and converted to Qantas shares.

Qantas has now achieved top quartile TSR performance over multiple consecutive rolling 3-year periods, with the top quartile TSR performance being achieved off higher starting share prices.

Qantas 3-Year TSR Performance vs Peer Groups (%)

7 CHANGES TO THE REMUNERATION FRAMEWORK FOR 2017/2018

During 2016/2017, the Remuneration Committee reviewed the Executive Remuneration Framework and as a result approved the following changes that:

− Ensure continued alignment of pay with business objectives, performance and shareholder experience

− Are informed by and consistent with market practice

− Consider shareholder feedback and preferences

These changes applied from 1 July 2017 and are detailed below.

Cap on Annual Incentive Outcomes under the STIP

The Board has set a formal cap on annual incentive outcomes under the STIP, as follows:

− For the CEO, STIP outcomes will be capped at a maximum of 200% of FAR

− For other Executive Management, STIP outcomes will be capped at a maximum of 160% of FAR

Pay Mix Change and LTIP Allocation Methodology Change

The Board changed the relative weighting of incentive plan opportunities for the CEO. This involved a decrease in the weighting towards annual incentives and an increase in the weighting towards long term incentives. The change further aligns the CEO to Qantas’ longer-term objectives. This was a pay mix change only and there was no increase in the CEO’s total pay opportunity.

The Board also changed the LTIP allocation methodology. Consistent with a shift in market practice among other ASX listed companies, awards of Rights under the LTIP are now made by applying a face value allocation methodology.

The move from a fair value methodology to a face value methodology required a one-off conversion of the stated ‘Target’ LTIP opportunity. This conversion applied an average of the fair value discount applicable to prior years’ LTIP awards. The new face value LTIP opportunity resulted in Executive Management being awarded a similar number of Rights as they would have received under the previous fair value approach. This methodology change neither advantaged nor disadvantaged Executive Management.

The Pay Mix for the CEO for 2016/2017 and 2017/2018 was as follows:

The Pay Mix for other Executive KMP for 2016/2017 and 2017/2018 was as follows:

8 REMUNERATION GOVERNANCE

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 outcomes to the 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 external benchmark data including comparable roles in other listed Australian companies 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 individual performance of the Executive

· Align the interests of Executive Management with shareholders

· Support a culture of Executive share ownership

· Support the retention of Executive Management

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 (with appropriate input from the Board and other Committees). This includes ensuring remuneration decisions are appropriate from the perspectives of business performance, Executive Management performance, governance, disclosure, reward levels and market conditions.

In fulfilling its role, the Remuneration Committee is specifically concerned with ensuring that Qantas’ Remuneration Framework 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 2017/2018, 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 seek a formal remuneration recommendation (as defined in the Corporations Act 2001) from its remuneration consultant during 2017/2018.

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 3 years

· Deferral of a portion of awards under the STIP with a restriction period of 2 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 2018 was valued at 10 times Base Pay. The potential equity awards under the STIP and the LTIP assists Executive Management 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 forgoes some or all awards otherwise due under the STIP

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

Summary of Key Contract Terms as at 30 June 2018

Contract Details Alan Joyce2,4 Tino La Spina5 Andrew David5 Gareth Evans5 Alison Webster5 Olivia Wirth5

1. Opportunity expressed as a percentage of Base Pay.

2. The CEO’s pay mix changed effective 1 July 2017. More detail on this change is provided on pages 41 to 42.

3. Rights awarded on a face value basis.

4. Target Remuneration Mix for the CEO for 2017/2018 was Base Pay 26%, Annual Incentive 26% and Long Term Incentive (on a face value basis) 48%. With Long Term Incentive on a fair value basis, the pay mix was Base Pay 33%, Annual Incentive 33%, Long Term Incentive 33%.

5. Target Remuneration Mix for Other Executives for 2017/2018 was Base Pay 36%, Annual Incentive 29% and Long Term Incentive (on a face value basis) 35%. With Long Term Incentive on a fair value basis, the pay mix was Base Pay 43%, Annual Incentive 35%, Long Term Incentive 22%.

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

7. Other than for misconduct or unsatisfactory performance.

Qantas Financial Performance History

To provide further context on Qantas’ performance, the following graphs outline a 5-year history of key financial metrics.

Return on Invested Capital (ROIC%) Underlying Profit before Tax1 ($M) Operating Cash Flow ($M)

RETURN ON INVESTED CAPITAL (ROIC %)2 1,750

(1.5%)

16.2

%

22.7

%

20.1

%

22.0

%

-5

%

5

%

%

15

25

%

2016/2017

2013/2014

2015/2016

2014/2015

2017/2018

(646)

975

1,532

1,401

1,604

(750)

(250)

250

750

1,250

2015/2016

2017/2018

2016/2017

2014/2015

2013/2014

1

,069

2

,048

2

,819

2

,704

,413

3

950

1,250

1,550

1,850

2,150

2,450

2,750

3,050

2013/20142014/20152015/20162016/20172017/2018

3,350

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 2017/2018 was $980 million (2017: $853 million, 2016: $1,029 million, 2015: $560 million and 2014: ($2,843) million).

Qantas 5-Year TSR Performance

-150

%

-50

%

50

%

150

%

250

%

350

%

%

450

Jul-14

Jul-15

Jul-16

Jul-18

Jul-13

Jul-17

Qantas

S&P / ASX100

MSCI World Airlines

9 EQUITY INSTRUMENTS

Set out in the following tables are the holdings of equity instruments granted as remuneration to the Executive KMP by Qantas.

Shares awarded under the Short Term Incentive Plan

The following table details shares awarded under the Short Term Incentive Plan that are subject to a restriction period.

1. Ms Webster had no holding in STIP as at 30 June 2018.

2. 1/3rd of the 2015/16 STIP awards (granted on 2 September 2016) was delivered to participants in deferred shares that are subject to a 2-year restriction period. The restriction period on these shares applied throughout 2017/2018.

3. 1/3rd of the 2016/17 STIP awards (granted 1 September 2017 for Other Executives and 11 September for the CEO) was delivered to participants in deferred shares that are subject to a 2-year restriction period.

The restriction period on these shares applied throughout 2017/2018.

4. Ms Grant ceased as a KMP on 31 October 2017.

5. Ms Wirth commenced as a KMP on 12 February 2018.

6. Ms Hrdlicka ceased as a KMP on 11 February 2018 and ceased employment with Qantas on 31 March 2018. All restricted shares (247,919) were forfeited on termination.

Rights awarded under the Long Term Incentive Plan

The following table details Rights awarded under the Long Term Incentive Plan that are subject to performance hurdles that are yet to be tested and vested Rights that have not yet converted into shares.

Number of Rights

1. Rights under the 2018–2020 LTIP were granted on 27 October 2017 to Mr Joyce (following approval by shareholders at the 2017 AGM) and 5 September 2017 for Other Executives, will be tested against the performance hurdles as at 30 June 2020. The number of Rights granted was determined using the face value of a Right on 30 June 2017 of $5.72, being the start of the performance period. The fair value of a Right on the grant date was $3.30 for Mr Joyce and $2.98 per Right for Other Executives.

2. Rights under the 2017–2019 LTIP were granted on 21 October 2016 to Mr Joyce (following approval by shareholders at the 2016 AGM) and 5 September 2016 for Other Executives and will be tested against the performance hurdles as at 30 June 2019. The number of Rights granted was determined using the fair value of a Right on 30 June 2016 of $1.45, being the start of the performance period. The fair value of a Right on the grant date was $1.95 per Right for Mr Joyce and $1.96 for Other Executives.

3. 100% of Rights under the 2015–2017 LTIP (granted on 24 October 2014 to Mr Joyce and 15 September 2014 for Other Executives) vested following the testing of performance hurdles as at 30 June 2017 and the Board’s approval of the 2015-2017 LTIP vesting outcome on 24 August 2017.

4. Rights under the 2016–2018 LTIP (granted on 23 October 2015 to Mr Joyce and 1 September 2015 for Other Executives) are included in the 30 June 2018 balance. 100% of these Rights vested following the testing of performance hurdles as at 30 June 2018 and the Board’s approval of the 2016–2018 LTIP vesting outcome on 22 August 2018.

5. Ms Hrdlicka ceased as a KMP on 11 February 2018 and ceased employment with Qantas on 31 March 2018. All unvested Rights (809,500) lapsed on termination.

Number of Shares

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

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:

Key Management Interest in Shares Commenced as Awarded as Rights Converted Other Interest in Shares

Personnel – Executives 1 July 2017 KMP Remuneration1 to Shares Changes2 30 June 2018

1. Shares awarded under the 2015/16 STIP are subject to a restriction period until after the release of the 2017/2018 full-year financial results. Shares awarded under the 2016/17 STIP are subject to a restriction period until after the release of the 2018/2019 full-year financial results.

2. Other changes include shares purchased, sold, and forfeited; and on cessation as KMP.

3. Ms Hrdlicka ceased as a KMP on 11 February 2018 and ceased employment with Qantas on 31 March 2018.

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 2018 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.

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

LTIP Awards

STIP Awards

Executives

2015/16

$’000

2016/17

$’000

2017/18

$’000

2016–2018

$’000

2017–2019

$’000

2018

–

2020

$’000

Total

$’000

2019

$’000

2020

$’000

2021

$’000

Total

$’000

137

86

682

724

Alan Joyce

939

,734

1

4,302

1

2

186

,763

,353

4,302

210

193

26

22

Tino La Spina

233

338

1,022

321

657

44

1,022

21

Andrew David

26

193

222

210

338

1,010

651

316

43

1,010

27

Gareth Evans

234

260

31

254

359

1,165

355

762

48

1,165

5

Alison Webster

-

46

158

-

254

463

196

235

32

463

11

Olivia Wirth

93

19

199

170

152

644

418

199

27

644

10 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

$3 million (excluding industry standard travel entitlements received) was approved by shareholders at the 2016 AGM. Total NonExecutive Directors’ remuneration (excluding industry standard travel entitlements received and other non-cash benefits) for the year ended 30 June 2018 was $2.55 million (2017: $2.33 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 ASX50 companies and revenue-based peer groups. During 2017/2018, Non-Executive Director fees increased by 3%.

Board Committees1