Qantas Remains Positive On Domestic Activity As It Manages The Crisis
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Qantas spoke about the state of its domestic and international services in its Annual General Meeting (AGM) last week. The flag carrier of Australia’s leadership shared that even though domestic operations are returning slower than expected, there are hopeful signs heading into next year. Moreover, the airline could also fly to new international destinations in early 2021.
Qantas’ management highlights that it took swift decisions to safeguard the future of the airline. This meant putting most of its operations into hibernation to avoid burning through its available cash. Additionally, it meant developing a plan to recover from a crisis of an unknown period of time. Notably, Qantas suspended international flights amid the strict travel restrictions within Australia.
Nonetheless, in the AGM call, Chairman Richard Goyder emphasizes that the overall key is liquidity and the ability to fund operations. Subsequently, since March, the company has raised over $2 billion in secured and unsecured debt.
The businessman believes that it is essential to realize that few airlines have access to the debt markets that Qantas has, let alone at the interest rates that it can achieve. Ultimately, this factor results from the strong position the firm was in when the crisis first began and the industry’s view on its future. In addition to debt, Qantas secured $1.4 billion through its first equity raising in a decade.
The company’s leadership expressed its sorrow that over 6,000 people will leave it due to the core debt conditions. Additionally, there is a review of another 2,000-plus roles in ground handling underway. Altogether, approximately 18,000 of the business’ people remain stood down.
All about borders
Nonetheless, Qantas believes that the key route to recovery is from its borders. The airline had a major setback when other states closed their borders in response to Victoria’s second wave of COVID-19. However, previously, it has seen some positive signs of a new recovery. For instance, South Australia, Northern Territory, and Tasmania have opened their borders to most other states.
Regardless, as affected areas begin to control their virus numbers, there is some frustrating inertia around others. Qantas highlights that the inactivity can have wider economic and social risk within Australia.
Meanwhile, the relaxing of some restrictions with New Zealand is offering hope. There is also encouragement with the potential for travel bubbles with parts of Asia. Both Qantas and Jetstar are keeping a close eye on new markets that could open due to these bubbles. Routes could include destinations that weren’t part of its pre-pandemic network.
A revised approach
Qantas hints that by early next year, South Korea, Taiwan, and various islands in the Pacific could be top destinations while it waits for the reopening of travel to core international markets such as the United States and the United Kingdom.
The airline is also going with this approach domestically. It is adding new airports that suddenly make sense. This is the kind of flexibility that it needs in order to make the most of any opportunities during this unprecedented period.
Qantas expected the group’s domestic services to be operating at about 60% of pre-COVID levels by this month. However, the continued internal border closures mean capacity is now below 30%. Subsequently, the delay caused a $100 million negative impact on earnings for the first quarter of the airline’s 2021 financial year. This factor will also impact in the second quarter.
Above all, Qantas believes that this aspect is to do with timing. It feels that there will soon be an upswing domestically. Most significantly, the operator has the liquidity to manage these factors. Therefore, because cash flow from continuing operations is positive before one-off incidents such as redundancies, the airline could continue at the current level of flying for a very long period if it had to.
Regardless, it doesn’t expect these dire conditions to last for so long as its three-year recovery plan remains on track. Moreover, there are positive signs on the opening of domestic borders.
“Assuming Queensland opens to New South Wales in coming weeks, we expect Group Domestic capacity to reach up to 50% by Christmas. We know that latent travel demand is strong. We saw that with our ‘scenic flight’ earlier this month, which sold out in 10 minutes. And we saw it when South Australia opened to New South Wales, with 20,000 seats selling across Qantas and Jetstar in just 36 hours,” Qantas CEO Alan Joyce said in the AGM call.
“With most international travel off limits for a while, we’re expecting to see a boom in domestic tourism once more borders open up. The Group is very well positioned to make the most of that opportunity. In fact, over time, our domestic market share is likely to increase organically from around 60% to around 70%, as our main competitor changes its strategy.”
Moreover, when international travel does eventually make its return, Qantas’ market share is expected to grow too. This is because it feels that overseas airlines take a conservative approach to capacity and focus on opportunities closer to home.
Altogether, this is a difficult period in the aviation industry, and Australia’s restrictions are doing Qantas no favors. However, there is some light at the end of the tunnel as the airline manages to adapt during these challenging times.
What are your thoughts about Qantas’ present situation? Do you miss flying with the airline on its international services? Let us know what you think of the current conditions in the comment section.
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