After $7b in losses over three years, Qantas sees the headwinds easing as it soars into 2023

After $7b in losses over three years, Qantas sees the headwinds easing as it soars into 2023

After posting three years of mega-losses totalling almost $7 billion, Qantas Airways (ASX: QAN) has declared the headwinds are easing amid record demand for business and leisure travel with key areas of the business expected to return to pre-pandemic levels as early as September this year.

Qantas reported an underlying loss before tax of $1.86 billion for FY22, with the bottom-line landing much lower at a $1.19 billion loss thanks to a $686 million profit from the sale of prime industrial land near Mascot Airport last year.

The latest full-year result has halved the company’s losses from the previous year as flying levels lifted from an average 33 per cent of pre-pandemic levels to 68 per cent by the end of FY22.

Domestic operations turned a profit in the final quarter at an underlying EBIT level as total domestic flying jumped from an average of 63 per cent pre-pandemic throughout the year to 103 per cent by 30 June. However, domestic operations still posted an underlying EBIT loss of $1.1 billion.

International capacity also rose to 49 per cent of pre-pandemic levels by the end of June, although it averaged just 17 per cent throughout the year.

Despite the widely publicised issues of flight delays and cancellations faced by Qantas, problems that CEO Alan Joyce says are confronting all airlines around the world, demand for flying has never been stronger.

“People are not just flying again; they’ve brought a level of enthusiasm for travel that was beyond our best projections,” says Joyce.

“Revenue intakes for leisure travel are around 125 per cent of pre-COVID levels. For business travel, it’s 90 per cent, and that’s despite the fact many people are still working from home during the current COVID and flu spike.

“Forward bookings are extremely strong across our airlines and consumer research shows that travel is one category people want to keep spending on, even as inflation and interest rates see them pull back elsewhere.”

Defending Qantas over criticism of its handling of flight delays and cancellations, Joyce says the rebound in travel demand has coincided with a ‘massive labour shortage’ that has been exacerbated by a spike in sick leave in recent months.

“It was incredibly tough on our people and deeply frustrating for our passengers,” says Joyce of the flight disruptions.

“We’ve had 320 pilots each day in isolation or calling in sick. No business can have coverage in reserve to be able to (handle) that.

“We’ve reduced our domestic flying in part to give us more buffer, and we’re rostering more crews across fewer flights which means we can better cover sick leave which is averaging almost 50 per cent above normal.”

Qantas has hired 1,500 new staff since April and plans to hire more to keep up with demand. The airline also opened a new cabin crew training facility in Sydney today.

The company has also set aside almost $200 million to share among its 19,000 employees with a one-off cash payment of $5,000 and 1,000 Qantas share rights, worth roughly another $5,000, as a reward for supporting the business through challenging times.

Joyce notes that Qantas’ service delivery has improved since July with baggage mishandling rates down from 11 in 1,000 to six in 1,000, which is almost back to pre-COVID levels.

“Cancellations were 7.5 per cent in July, decreasing to 5 per cent in August. We’ll be back at pre-COVID levels in September,” he says.

While fuel price hikes are impacting ticket prices, Joyce says Qantas’ low-cost subsidiary Jetstar is still offering ‘unbelievably attractive’ prices across most of its flights with five million of the 13 million flights per year offered at less than $100 each and 10 million passengers travelling at less than $200 each. This is despite fuel costs now tracking at more than 60 per cent above pre-COVID levels.

“That means we’ll have $1 billion more in our fuel bill but only 75 per cent of international flying and less than 100 per cent of the domestic flying,” says Joyce.

Qantas has earmarked upgrades to a number of passenger lounges in 2023, including its Auckland facility following the announcement of a new 787 Dreamliner route from Auckland to New York which will begin services in June next year.

Qantas is also adding a new business lounge to its existing Qantas Club in Adelaide and renovating the Chairman’s Lounge. Lounges in Port Hedland and Rockhampton will also be upgraded and expanded.

The investment is targeting a return to more normalised passenger numbers and flights in the second half of FY23 by Qantas.

While domestic flight capacity is down 10 per cent due to higher fuel costs and staff shortages, the company is expecting some of that lost capacity to be restored during the year.

Qantas is forecasting domestic operations to be at 95 per cent of pre-COVID levels in the current half and 106 per cent in the second half.

International capacity will increase as more A380s and 787-900s enter service with operations set to increase from 65 per cent of pre-COVID levels in the current half year to 84 per cent by the second half of FY23.

Qantas shares were up 5.7 per cent to $4.80 at 12.10 AEST.

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