Australian flag carrier Qantas said Thursday (20 May) that it expects to lose at least A$2 billion (US$1.54 billion) this financial year and its total revenue loss will top out at A$16 billion, despite an uptick in domestic aviation. The losses come as Qantas, and other international airlines, try to navigate the carnage wrought by the COVID-19 pandemic on the aviation industry worldwide.
The airline also said it expects to cut ‘hundreds’ of cabin crew in addition to the thousands of workers already let go, but added that 16,000 of its former 22,000-strong workforce were back at work.
“Assuming no further lockdowns or significant domestic travel restrictions, the group expects to be underlying EBITDA positive in the range of A$400-450 million for FY21,” the airline said. “At a statutory level before tax, the group is still expecting a loss in excess of A$2 billion, which includes the significant costs associated with previously announced redundancies, aircraft write downs and non-cash depreciation charges.”
Qantas said consumer confidence in domestic travel is proving more resilient compared with earlier in the pandemic, despite the temporary tightening of some border restrictions. “A three-day lockdown in Perth during April cost the group an estimated A$15 million in EBITDA. This follows the A$29 million impact from the Brisbane lockdown in late March and the Sydney (Northern Beaches) outbreak that resulted in an impact of around A$400 million in EBITDA for the period,” Qantas said.
The airline said domestic corporate travel continues to recover and is now at 75 percent of pre-COVID levels and said leisure demand is growing strongly, with deferred international holidays converting into multiple domestic trips. The group “is on track to reach 95 percent of its pre-COVID domestic capacity for the fourth quarter of FY21. Qantas and Jetstar expect to average 107 and 120 percent respectively of their pre-COVID domestic capacity in FY22,” the airline said. To meet this demand, Qantas and Jetstar have now brought all domestic aircraft back into service. In addition, QantasLink has activated eight (of up to 14) Embraer E190 aircraft as part of its deal with Alliance Airlines. Jetstar is reactivating up to five Boeing 787-8s for domestic use as well as six A320s on loan from Jetstar Japan. With the increase in domestic leisure travel demand, Qantas and Jetstar have now announced a total of 38 new routes since July last year.
Qantas Group CEO Alan Joyce said “We have a long way still to go in this recovery, but it does feel like we’re slowly starting to turn the corner. It’s great to see so many of our people now back at work and the majority of our fleet back in the air. Our recovery strategy of targeting cash-positive flying rather than pre-COVID margins is helping increase activity levels and repair our balance sheet. The fact we’re making inroads to the debt we needed to get through this crisis shows the business is now on a more sustainable footing. The main driver is the rebound of domestic travel, which now looks like it will be bigger than it was pre-COVID, at least until international borders re-open.”
Travel demand between Australia and New Zealand is rebuilding steadily. Several pauses and additional restrictions from both countries in response to small outbreaks have impacted confidence, leading to capacity being limited to around 60 percent of pre-COVID levels. This is expected to gradually normalise, following a similar pattern as key domestic routes. All of Qantas’ Boeing 787-9s and about half of its A330 aircraft are active, flying a mix of freight, repatriation and regular passenger services.
Qantas Freight continues to serve as a natural hedge for the downturn in international passenger travel and the cargo capacity that it normally brings. Freight is expected to exceed the revenue it achieved in the first half of FY21.
Qantas has revised its expectations for the return of a significant level of international flying from end-October 2021 to late December 2021. This is in line with the Australian government’s revised timeline for effective completion of the national COVID-19 vaccination program, and the Qantas Group is optimistic that the opportunities for additional travel bubbles with other countries will increase significantly from that point. We will continue to liaise with the Australian Government and adjust our planning assumptions as necessary.
The net cash cost of carrying the international division has improved with the two-way Trans-Tasman travel bubble and strong performance from freight, dropping from A$5 million per week to around $3 million.
Qantas said it is “well on track” to cut at least A$1 billion in annual costs by the 2023 financial year and said savings of A$600 million should be delivered this financial year. The airline said 90 percent of the job redundancies associated with the 8,500 job losses already announced and the company would also put in place a two-year wage freeze. The company will also lower front-end commissions paid to travel agents on international tickets from 5 percent to 1 percent, which will take effect July 2022
“Managing costs remains a critical part of our recovery, especially given the revenue we’ve lost and the intensely competitive market we’re in,” Joyce said. “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, 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. No one wants to lose the tremendous success we’ve had at managing COVID but rolling out the vaccine totally changes the equation. 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.”