Qantas bouncing back as domestic travel resumes

Qantas bouncing back as domestic travel resumes

Qantas (ASX: QAN) is on the path to repair its balance sheet during the second half of FY21 as domestic borders reopen and interstate travel restarts.

The airline reported its group domestic capacity has improved at 68 per cent of pre-COVID levels for December, rising to nearly 80 per cent for Q3.

It expects to be close to break even at the underlying EBITDA for the first half of FY21, but will still post a "substantial" statutory loss for the financial year.

Qantas group CEO Alan Joyce said the airline has seen a "vast improvement" in trading conditions over the past months as Australians begin travelling domestically once again.

"There's been a rush of bookings as each border restriction is lifted, showing that there's plenty of latent travel demand across both leisure and business sectors," Joyce says.

Between both Qantas and Jetstar, Joyce says there were more than 20,000 fares sold for flights to Queensland in 72 hours after the border openings with Sydney and Victoria were announced.

"We're also seeing people booking several months in advance, which reflects more confidence than we've seen for some time," Joyce says.

"Bringing domestic capacity back to almost 70 per cent in December is very positive compared to where we've been, and so is seeing more of our people back at work.

"But overall the group is still a long way off approaching normal."

Qantas' recovery plan is on track to deliver $600 million in structural cost benefits in FY21, reaching at least $1 billion in annual cost improvements from FY23 onwards.

However, as part of a review of its ground handling operations 2,500 more employees have been made redundant, taking the total number of job losses across the group due to COVID-19 to 8,500.

The recent increase in domestic travel has allowed Qantas to stand up 11,500 full time equivalent roles in December, up from 9,00 in October. This is expected to increase to around 14,000 in Q3. Currently, approximately 13,500 roles remain stood down.

Qantas says it will maintain strong liquidity to protect against additional and unexpected economic shocks, despite optimism surrounding COVID-19 vaccine development progress.

By 31 December approximately 50 per cent of redundancy payments associated with 8,500 job losses will have been made.

As at 30 November the airline had $3.6 billion in available liquidity, and the airline will increase that by about $500 million before 31 December to provide additional standby liquidity.

"It is unclear what shape the domestic economy will be in next year, particularly once broader government support winds back," Joyce says.

"Until a vaccine is rolled out, the risk of more outbreaks remains."

The group's international operations remain largely grounded, with the exceptions being repatriation services and a limited number of flights to New Zealand under a one-way bubble arrangement.

"International travel is likely to be at a virtual standstill until at least July next year and it will take years to fully recover, which means we're carrying the overhead for billions of dollars worth of aircraft in the meantime," Joyce says.

"We're also facing a revenue drop of at least $11 billion in this financial year alone compared to pre-COVID.

"Overall, we're optimistic about the recovery but we're also cautious given the various unknowns. We also have a lot of repair work to do on our balance sheet from the extra debt we've taken on to get through the past nine months."

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