Qantas pain shows in annual loss and A$4 billion drop in revenue due to COVID-19 pandemic

Australian flag carrier Qantas Airways reported its first annual net loss in six years when it posted an after-tax loss of A$1.96 billion (US$1.40 billion) and said it was unlikely to return to a profit before its next financial year as the world of aviation continues to be hobbled by the COVID-19 pandemic and governments around the world shut their borders to international travel. The airline’s loss before tax was A$2.7 billion, the majority of which was attributable to write-downs on its A380 aircraft. The group said it also incurred a A$4 billion hit directly attributable to the COVID-19 pandemic The company said it was facing its “most challenging period in its long history”. It also said the company had a strong first half when it reported a A$771 million underlying profit before tax “followed by a near total collapse in travel demand”. Qantas Group CEO Alan Joyce said the second half of the 2020 financial year “was the toughest set of conditions the national carrier had faced in its 100 years – but that it had the resilience to deal with them”. “The impact of COVID on all airlines is clear. It’s devastating and it will be a question of survival for many. What makes Qantas different is that we entered this crisis with a strong balance sheet and we moved fast to put ourselves in a good position to wait for the recovery,” Joyce said in a statement in announcing the results. “We’ve had to make some very tough decisions in the past few months to guarantee our future. At least 6,000 of our people will leave the business through no fault of their own, and thousands more will be stood down for a long time. Recovery will take time and it will be choppy. We’ve already had setbacks with borders opening and then closing again. But we know that travel is at the top of people’s wish lists and that demand will return as soon as restrictions lift. That means we can get more of our people back to work.” Joyce added that the pandemic is “reshaping the competitive landscape and that presents a mix of challenges and opportunities for us. Most airlines will come through this crisis a lot leaner, which means we have to reinvent how we run parts of our business to succeed in a changed market”. He also warned that the airline will likely report a “significant underlying loss in FY21”. Domestic performance Between 1971 and 1984, Qantas 747s carried the distinctive ‘ochre stripe’ livery. The company recently retired its last 747. (PHOTO: Qantas) Qantas said its domestic business performed strongly in the first half that helped offset the 50 percent drop in revenue in the second half caused by COVID-related restrictions. Qantas Domestic achieved EBIT of A$173 million while Jetstar’s domestic flying achieved EBIT of A$112 million, including absorbing a A$33 million impact of industrial action over the peak summer period. As a result of the group’s main domestic competitor, Virgin Australia,  significantly reducing its fleet and closing its low-cost carrier, Qantas expects its market share to naturally grow from around 60 percent to up to 70 percent as the market recovers. International performance Qantas, like other international airlines, are having to re-adjust to a ‘new normal’ in light of the COVID-19 pandemic. (PHOTO: Qantas) Qantas International made a A$56 million profit for the year, driven largely by a record performance by Qantas Freight and a huge increase in e-commerce. The group’s regular scheduled international flights effectively ceased in April, replaced by over 100 services operated by Qantas on behalf of the Federal Government to cities including Hong Kong, London, Los Angles, Lima, Buenos Aires and Mumbai. Jetstar’s international businesses moved into losses driven by border closures. Domestic flying in New Zealand was planning a return to near-full capacity by end-August but remains flexible given changing restrictions. Jetstar Asia in Singapore is reducing its fleet and workforce by more than 25 percent. Jetstar Japan was impacted by local lockdowns but resumed all domestic routes in July and is planning to operate 75 percent of pre-COVID capacity in August. In June, the group announced its plans to exit Jetstar Pacific in Vietnam, of which it is a 30 percent shareholder. Government support As one of the most heavily impacted companies, the Qantas Group collected A$267 million in JobKeeper payments, the majority of which was paid directly to employees on stand-down and the rest used to subsidise wages of those still working. Qantas and Jetstar operated a series of domestic, regional and international flights on behalf of the Federal Government, as well as some freight services, to maintain critical links that had been made commercially unviable by travel restrictions. These flights were operated on a fee-for-service basis, with fare revenue offsetting the cost to the taxpayer. To 30 June 2020, the total gross benefit of government support was A$515 million and the net benefit (after costs for flights operated) was A$15 million. The nature of ongoing industry assistance means the level of support received in FY21 will depend on the amount of flying activity. Qantas said its available liquidity was A$4.5 billion at 30 June 2020, including A$1 billion of undrawn facilities. The group raised more than A$1.4 billion through a fully underwritten institutional placement and retail Share Purchase Plan. As at 30 June 2020, net debt was A$4.7 billion and remains at the lower end of the target range. The group has no major debt maturities until June 2021 and no financial covenants on debt. Planned net capital expenditure was reduced by A$400 million in the second half for a total of A$1.6 billion for FY20. Significant further reductions are forecast in FY21 with the deferral of 787-9 and A321neo deliveries to meet the Group’s requirements. Recovery plan Implementation of the three-year recovery plan, announced in June 2020, is well underway, Qantas said. Several key parts of the plan are complete or in progress, including: Around 4,000 of at least 6,000 redundancies expected to be finalised by end-September 2020, with continued union consultation. Ongoing stand down of around 20,000 employees, enabling retention of core skills until work returns. Early retirement of the Boeing 747 fleet and more than 100 aircraft now in storage (in a state that significantly reduces the need for ongoing maintenance). Raised A$1.4 billion in equity in addition to the A$1.75 billion of long-term debt funding secured during the second half of FY20. The plan targets A$15 billion in benefits over three years from reduced activity, with A$1 billion per annum in ongoing cost savings from FY23 through efficiency gains across the group. CEO Joyce concluded that “we spend a lot of time talking about the challenges we face – for obvious reasons. We know FY21 will be another tough year. But there is opportunity on the horizon. Hard decisions in the current climate are largely about survival – and also about eventually being able to grow again. Coming out of this crisis, we’ll be the only Australian airline that can fly long haul. We want to expand on that when our balance sheet allows, picking up where we left off with Project Sunrise. Domestically, there are lots of opportunities for Qantas, QantasLink and Jetstar, which will ultimately justify renewing our fleet. Our message is simply this: the Flying Kangaroo’s wings are clipped for now, but it’s still got plenty of ambition. And we plan to deliver on it.” For Editorial Inquiries Contact: Editor Matt Driskill at [email protected] For Advertising Inquiries Contact: Head of Sales Kay Rolland at [email protected]