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Huge QF loss, layoffs, deals with agents, int’l flights deferred

February 26, 2021 Headline News No Comments Email Email

Qantas and Jetstar have deferred their planned resumption of regular international passenger flights to most destinations to 31 October 2021 (with the happy exception of New Zealand) – four months later than the previous estimate of July, which had been in place since mid-2020.

Trans-Tasman flights are still on track to resume in July, with a bit of luck. Qantas said yesterday the delay in flying to longer-haul destinations aligned with the expected effective completion of Australia’s Covid-19 vaccine rollout.

The previous Qantas estimate had been looking increasingly unlikely. Victoria, for instance, is currently accepting no scheduled international flights at all.

The Qantas announcement coincided with posting a stupendous half-year loss of over $1 billion. Planning its recovery program, the airline spoke ominously of “new deals with major travel agents, reducing cost of sale” and confirmed that the belt-tightening program “unfortunately involves the difficult decision of at least 8500 people leaving the organisation”.

“More than 5000 have left so far with the remainder to have left by the end of FY21,” a Qantas statement said.

“A total of 14,500 full time equivalent roles are now stood up while around 11,000 full time equivalent roles remain stood down, most of which are associated with international flying.”

On the positive side, Qantas and Jetstar are planning for “a significant increase in flights to and from New Zealand from 1 July 2021”.

“The Group has the ability to respond to travel bubbles that may open.”

Here are the half-year figures:

  • Underlying Loss Before Tax: $1.03 billion
  • Statutory Loss Before Tax: $1.47 billion
  • $6.9 billion revenue impact from COVID-19 crisis in HY21 (down 75%)
  • Underlying operating cash flow: $1.05 billion
  • Total liquidity of $4.2 billion, providing capital for restructuring and buffer against uncertainty
  • Domestic airlines generating positive underlying cash flow
  • Losses in Qantas International offset by record Qantas Freight performance
  • Continued strong cash generation by Qantas Loyalty
  • Restructuring program on track to deliver $0.6 billion in cost benefits in FY21
  • International flying now aiming to restart end-October 2021

In the six-month period – which covered Victoria’s extended lockdown and nationwide border closures – the Qantas group faced an eye-watering $6.9 billion drop in revenue. It managed to convert this into a $1.03 billion Underlying Loss Before Tax.

The Group generated Underlying EBITDA of $86 million, which it said reflected “the fundamental resilience of the portfolio”.

The Group’s Statutory Loss Before Tax was $1.47 billion. This included further redundancy and restructuring costs of $284 million (in addition to the $642 million provided for in FY20) and a further $71 million writedown of the A380 fleet in-line with its Australian dollar market value.

Qantas Group chief executive Alan Joyce said: “These figures are stark but not surprising.

“During the half we saw the second wave in Victoria and the strictest domestic travel restrictions since the pandemic began. Virtually all of our international flying and 70% of domestic flying stopped, and with it went three-quarters of our revenue.

“Despite the huge challenges, these results show the Group’s underlying strength.

“When we had the opportunity to fly domestically, we saw significant pent up travel demand and generated positive cash flow.

“Qantas Loyalty still had significant income because the program has evolved to the stage where the vast majority of points are earned from activity on the ground. Qantas Freight had a record result and has been a natural hedge to the lack of international passenger flying, which has created a shortage of cargo space globally.

“These factors couldn’t overcome the massive impact of this crisis, but they have softened it.

We’ve maintained a high level of liquidity because we were quick to cut costs and because we’ve been able to raise debt and equity. This gives us the breathing room to deal with the levels of uncertainty we’re still facing, and funding for the restructuring that will ultimately speed up our recovery.”

GROUP DOMESTIC

The Group’s domestic flying operations across Qantas, QantasLink and Jetstar generated positive underlying cashflow despite a circa 70% decline in both revenue and capacity.

Qantas Loyalty signed multi-year deals with three of the major banks, including a significant expansion with Commonwealth Bank to be rolled out later this calendar year. A new and much broader partnership with Accor will also launch in mid-2021.

LOOKING AFTER CUSTOMERS

Looking after customers remains core, with a focus on creating COVID-safe environments across Qantas and Jetstar and offering high levels of flexibility to help offset uncertainty on borders. Recent initiatives and improvements include:

  • Fly Well – using technology to minimise physical contact at airports; social distancing in lounges; providing masks and sanitising wipes on board; and enhanced cleaning throughout. (The allied Work Well program applies COVID-safe principles for employees in both frontline and office-based roles.)
  • Fly Flexible – offering unlimited date changes on all Qantas domestic and international fares through to at least February 2022, removing the biggest barrier to booking while border uncertainty persists.
  • Rewarding loyalty – a further 12-month status retain offer for Frequent Flyers; offering status match to high-tier members of other airline programs; and increasing the number of reward seats on domestic flights by 50 per cent.
  • Better value – extending complimentary drinks service on all Qantas domestic flights, in addition to existing inclusions like free Wi-Fi on 737s; eligible customers have access to 35 domestic lounges compared to the main competitor’s seven; Jetstar domestic fares as low as $19.
  • Extension of flight vouchers – Qantas has extended credit vouchers to enable travel until 31 December 2023 on domestic or international flights, with Jetstar doing the same for vouchers issued due to COVID-19 disruptions.

RECOVERY PROGRAM

Key to the Group’s recovery from the COVID crisis is its plan for major restructuring over three years. This will deliver at least $1 billion in permanent annual savings from FY23 onwards.

Significant permanent savings are also being achieved through the following:

  • New deals with major travel agents, reducing cost of sale.
  • Rationalisation of the Group’s property footprint, including handback or subleasing of surplus office space. Finalisation of a major review, which includes Qantas and Jetstar head offices, is expected by the end of March.
  • Renegotiation of supplier deals (including expiring aircraft leases). 

Edited by Peter Needham

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