Australia's leading airline Qantas (ASX: QAN) expects to be cash flow positive in the June half, but improved conditions will not be enough to prevent a $2 billion loss before tax in FY21.
As part of its cost-cutting drive the group has also announced a two-year wage freeze, and from July 2022 the airline will cut front-end commissions paid to travel agents on international tickets from 5 per cent to 1 per cent.
The expected loss compares to a statutory loss after tax of $1.9 billion in FY20, and is fuelled by significant costs relating to previously announced redundancies, aircraft write-downs and non-cash depreciation charges.
Of the 8,500 job losses already announced, 90 per cent of redundancies have been completed and the rest are expected to be finalised by the end of June. In addition, the group will also be offering voluntary redunancies to Qantas' international cabin crew
Total revenue for the group since the start of COVID-19 is now projected to reach $16 billion by the end of this financial year, but on a more positive note revenue from domestic flights is set to almost double in the current half.
In the absence of any further lockdowns or significant domestic travel restrictions, Qantas has forecast underlying EBITDA of $400-450 million for FY21.
"We have a long way still to go in this recovery, but it does feel like we're slowly starting to turn the corner," says 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," he says.
The group's debt peaked at $6.4 billion in February and is set to fall to $6.05 billion by 30 June, while liquidity remains strong with total funds of $4 million including cash of $2.4 billion.
"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," Joyce says.
"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.
"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."
With its property review now completed and expectations international travel could resume at the end of the year, 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 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 $5 million per week to around $3 million.
The group's target of at least $1 billion in annual cost reduction by FY23 is well on track, with $600 million to be delivered this financial year.
"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 explains.
"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."
The Qantas executive called on the country to put the same intensity into the vaccine rollout as we've put on lockdowns and restrictions.
"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," he says.
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