Qantas is bouncing back from the worst of the global travel downturn. While most of the international fleet remains grounded, a strong rebound in domestic travel demand coupled with growth across Qantas’ loyalty and cargo divisions is seeing the airline fly into recovery mode.
Qantas flags US$1.54bn loss but financial recovery underway
The Australian flag carrier issued an operations update on Thursday morning (Sydney time). That update points to Qantas climbing out of the financial and operational hangover caused by the ongoing travel downturn.
Qantas is flagging a full-year loss of US$1.54 this financial year (ending June 30). But the airline also says net debt has peaked and is now declining. Meanwhile, the sustained recovery of domestic flying is generating strong cash flows, offsetting the losses incurred by grounded international services.
“We have a long way to go in this recovery, but it does feel like we’re slowly starting to turn the corner,” said Qantas CEO Alan Joyce today.
Mr Joyce says Qantas has US$3.09 in available liquidity. That liquidity comprises US$1.85 billion in cash and US$1.24 billion in undrawn debt facilities. The Qantas Group expects to be cash-flow positive across the second half of 2021.
While a loss is expected this financial year, Qantas’ finances are recovering. Mr Joyce attributes this to the strong performance of his domestic, loyalty, and cargo divisions. He also highlights the cost savings resulting from the recovery program. Among other cost reductions, wage freezes and redundancies will save the airline US$464 million this financial year.
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Robust domestic flying sets the scene for a strong recovery
As part of Thursday’s update, Qantas disclosed they were looking to let go another several hundred international cabin crew. Qantas says this would occur via an expression of interest program. Qantas notes 16,000 of its 22,000 workers are now back at work.
Meanwhile, Qantas notes domestic travel demand is growing and proving increasingly resistant to short-term internal border closures. Across the Qantas Group (that includes Qantas, QantasLink, and Jetstar), domestic capacity is forecast to hit 95% of pre-travel downturn levels later this year. Next year, domestic capacity is forecast to exceed 2019 levels.
While much of the domestic travel rebound has been driven by leisure travel, Alan Joyce also notes the all-important corporate market is recovering. Domestic corporate travel is now running at about 75% of pre-travel downturn levels.
Since last July, the Qantas Group has started flying on 38 new routes across Australia. Low-cost subsidiary Jetstar is busy enough to put its grounded Dreamliners onto domestic routes and bring smaller Airbus aircraft down from Jetstar Japan.
Qantas CEO continues to push for a border re-opening
Qantas remains open-minded about any significant international flying resuming soon. The airline would welcome it. However, Qantas has recently revised its planned restart of international services. The airline has pushed a restart back to late December in line with Australian Government guidance. In the interim, Qantas is generating some business from the New Zealand travel bubble and remains hopeful further travel bubbles will open soon.
“We’ve adjusted our expectations for when international borders will start opening based on the government’s new timeline, but our fundamental assumption remains the same – that once the national vaccine rollout is effectively complete,” says Mr Joyce.
“Australia can and should open up. That’s why we have aligned the date for international flights restarting in earnest with a successful vaccination program.”
Trans-Tasman travel bubble performing okay
In April, the opening of a two-way travel bubble between Australia and New Zealand has seen Qantas trans-Tasman flights recover to around 60% of pre-travel downturn levels. Across May, the routes between Sydney and Auckland and Melbourne and Auckland will be the seventh and ninth busiest international airline routes globally when measured by available seats. Qantas does expect demand to normalize on trans-Tasman routes.
Alan Joyce also took the opportunity on Thursday to throw his weight behind the campaign to get Australia’s borders open sooner rather than later. My Joyce has long argued for a safe re-opening of Australia’s border. He says aligning border reopenings with the rollout of vaccinations and digital health passports makes sense.
His comments on Thursday provide some tacit support for his fellow CEO, Virgin Australia’s Jayne Hrdlicka. The Virgin Australia CEO experienced widespread criticism earlier this week for bluntly addressing the issue of ongoing border closures.
“No one wants to lose the tremendous success we’ve had at managing COVID but rolling out the vaccine totally changes the equation,” says the Qantas CEO.
“The risk then flips to Australia being left behind when countries like the US and UK are getting back to normal.
“Australia has to put the same intensity into the vaccine rollout as we’ve put on lockdowns and restrictions because only then will we have the confidence to open up.”