Qantas has moved this morning to reduce its international capacity by 90% and domestic capacity by 60% until the end of May. The decision follows the Australian government imposing a mandatory 14-day self-isolation period on all incoming international arrivals.
The airline made the announcement through the Australian Stock Exchange. It said;
“As a result of significant falls in travel demand due to coronavirus, and the new government restrictions across multiple jurisdictions in recent days, Qantas and Jetstar will make further and much larger cuts to domestic and international flying schedules.”
The announcement ends days of speculation
It ends a couple of days of speculation surrounding further cuts. An internal Qantas memo from CEO Alan Joyce said demand had “evaporated” and any recovery wasn’t expected in the short-term.
This morning’s announcement follows significant cuts made last week. The airline says the route-by-route details will be announced over the following days. However, it was confirmed this morning that the total group international capacity will be cut by 90% and total group domestic capacity will be cut by 60%. The changes will be felt almost immediately and will be in effect until the end of May.
The statement said;
“Despite the deep cuts, the national carrier’s critical role in transporting people and goods on key international and domestic routes will be maintained. This includes using some domestic passenger aircraft for freight only flights to replace lost capacity from regularly scheduled services. Qantas’ fleet of freighters will continue to be fully utilized”.
Capacity already cut, now to be cut further
Last week, Qantas slashed transpacific flights and reduced capacity on its key London bound flights. Capacity on routes into Asia had already been significantly reduced. Today’s announcement suggests a swag of further routes will be suspended and barebones services maintained on key routes such as Los Angeles, Singapore, and London.
As both Australia and New Zealand have imposed 14-day self-isolation requirements on all incoming passengers, traffic on the key trans-Tasman sector has evaporated. It is fair to expect nearly all services to New Zealand to be suspended.
Capacity reductions significant for several reasons
The service reductions are significant on several levels. Firstly, whilst large, Australia is an island and air links are critical for commerce and the movement of people. Secondly, key cities are geographically spread around Australia and domestic airline traffic between them is significant.
Indeed, the route between Sydney and Melbourne is usually one of the busiest in the world. Third, many remote communities, such as those in central Queensland and on the north-west coast rely heavily on air links to get to their nearest large city.
As Qantas slashes capacity, it will be interesting to see whether routes are suspended altogether or services are reduced to skeleton services. There is also a social utility argument about the need to maintain a service to an isolated center rather than, say, Canberra. Last week, Qantas was saying they preferred not to suspend routes altogether.
Qantas will probably be okay, key competitors less so
Unlike many competitors, Qantas is robust enough to ride out the worst financial storms. However, its stock price has almost halved this year and its usually rosy profits will disappear. The airline doesn’t expect demand to rebound for weeks, possibly months.
The airline employs over 30,000 people and is now dealing with thousands of under-utilized workers. Qantas will attempt to manage this via the use of paid and unpaid leave.
An announcement from local competitor Virgin Australia is also imminent. Virgin Australia does not enjoy the financial buffer Qantas does and is far more vulnerable. Its new route between Brisbane and Tokyo Haneda is due to be launched at the end of this month. That now, is surely in doubt.