In a market update, Qantas Group has disclosed that the company expects to post a statutory loss (before tax) of more than $2 billion in FY21, which on top of a $2.7 billion loss last year, means that the pandemic has so far cost the airline at least $16 billion in lost revenue by the end of this financial year.
“We have a long way still to go in this recovery, but it does feel like we’re slowly starting to turn the corner,” said Qantas Group CEO Alan Joyce. “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.”
Qantas stated that the rebound in domestic travel, which is expected to be a larger market than pre-Covid, is helping the airline to pay down the debts raised during the crisis. Qantas stated that its net debt had peaked at $6.4bn and are expected to be lower than they were in December ($6.05 billion) by the end of the financial year. Liquidity levels remain at $4bn including cash of $2.4bn and $1.6bn of undrawn debt facilities as at 30 April 2021.
The Group is on track to reach 95 per cent of its pre-COVID domestic capacity for the fourth quarter of FY21. Qantas and Jetstar expect to average 107 and 120 per cent respectively of their pre-COVID domestic capacity in FY22.
“Jetstar was profitable on an underlying EBIT basis in April, which was largely due to strong leisure demand over Easter and school holidays, but it’s an important sign that we’re on the right path,” says Joyce.
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.
Travel demand between Australia and New Zealand is rebuilding steadily, says the Group.
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.
The airline has been required to adjust its expectations for the resumption of international travel but notes that once the vaccination rollout is complete, borders can reopen and travel resume. The Group has revised its expectations for the return of a significant level of international flying from end-October 2021 to late December 2021 (except Trans Tasman). 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.
“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,” said Joyce. “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.”
Assuming no further lockdowns or significant domestic travel restrictions, the Group expects to be Underlying EBITDA positive in the range of $400 – 450 million for FY21. At a statutory level before tax, the Group is still expecting a loss in excess of $2 billion, which includes the significant costs associated with previously announced redundancies, aircraft write downs and non-cash depreciation charges.
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.
The Group states that it is well on track to meet its target of at least $1 billion in annual cost reduction by FY23, with $600 million to be delivered this financial year.