Potential Resumption of International Travel in Australia: A Subject of Debate

Summary

• The emergence of new coronavirus cases in Victoria and resultant state border closures have delayed the progress of travel bubble with New Zealand.
• The silver lining is the boost to tourism industry from the travel bubble struck between Cocos (Keeling) Island, Christmas Island and Western Australia in July.
• Australian PM recently ruled out the possibility of overseas border reopening in the foreseeable future.
• Flight Centre anticipates a gradual recovery in international travel during FY21.
• Qantas does not expect the international network to restart before July 2021, while predicts earlier restart for Tasman routes.

Disrupting the popular trend of domestic and international travel, COVID-19 pandemic brought an unusual misfortune for the Australian travel industry reeling from the virus crisis. While the interstate travel has picked up steam with the opening of some state borders, overseas travel is still a stumbling block.

Initially, the speculations were mounting over the relaunch of international travel by September, with the execution of trans-Tasman travel bubble. However, the emergence of new coronavirus cases in Victoria and resultant state border closures delayed the progress of travel bubble with New Zealand. As of now, the implementation of trans-Tasman travel bubble is unlikely in the near term.

However, the silver lining is the boost to tourism industry from the travel bubble with Western Australia, struck in July. Both Cocos (Keeling) and Christmas Islands are observing an uptick in the Australian visitors since the execution of travel bubble with Western Australia.

It appears that the absence of overseas travel is proving a boon for the nation’s regional travel sector. Although, one cannot neglect the importance of overseas travel resumption for the recovery of the battered travel industry.

Must Read! Travel Bubbles: Knights in Shining Armour for Battered Travel Industry

Australian PM Envisages Border Restrictions to Remain in 2020

While the Australian Treasurer hinted in July over the restart of overseas travel from 1^st January 2020, the PM recently ruled out the possibility of border reopening in the foreseeable future. Mr Scott Morrison lately notified that international borders are unlikely to open for many months amid Victoria’s battle with the second wave of COVID-19 infections.

The advent of new coronavirus cases in Victoria and the resultant lockdown has not only derailed the revival of travel industry but has also wreaked havoc on the nation’s economy. With the return of this shutdown, Treasurer Josh Frydenberg expects an economic hit of up to $12 billion in the September quarter and a peak in the unemployment rate to ~13 per cent by September quarter 2020.

While the latest lockdown can set back the speed of travel industry’s recovery from the virus-induced downturn, extended wage support from the government can help mitigate potential business failures with further shutdowns. Besides, it can provide some sort of cushion to the hammered travel industry.

Do Not Miss! Australian Travel Players’ Earnings Round-Up: Beats and Misses

With that said, let us quickly shed light over the projections provided by regulators and travel players on overseas travel:

Flight Centre Expects Overseas Travel to Recover Gradually in FY21

Australian travel agency group, Flight Centre Travel Group Limited (ASX:FLT) anticipates a gradual recovery in the international travel during FY21, backed by following developments:

• Opening of travel bubbles and corridors between countries, which is happening now.
• Collaborative work of businesses and governments to develop broader re-opening strategies and plans, which has also started to occur in some countries.

However, the Company believes that the demand for overseas travel, which is the primary revenue source of its leisure business, will not fully revive before FY23 or FY24 without an effective vaccine against COVID-19.

FLT has recently released its FY20 accounts for the period ended 30th June 2020 on the ASX. The Company has experienced an underlying loss before tax of $510 million during the period, relative to an underlying profit before tax of $343.1 million in FY19.

Amid cancellation of FLT’s forward leisure bookings and minimal sales in March and throughout Q4, the Company’s TTV (Total Transaction Value) finished the year at $15.3 billion, 36 per cent down on FY19.

The Company has planned to  work towards extending its liquidity runway in the near-term by:

• Improving revenue post lifting of travel restrictions
• Keeping targeted cost focus on its leisure businesses

Qantas Foresees International Travel Resumption Unlikely Until July 2021

The flag carrier of Australia, Qantas Airways Limited (ASX:QAN) does not expect the international network to restart before July 2021, while anticipates earlier restart for Tasman routes. Moreover, the group anticipates the majority of its international fleet to remain grounded in FY21.

Qantas shared the projection with its FY20 financial results published on 20^th August 2020. The group observed a Statutory Loss Before Tax of $2.7 billion in FY20 amid a complete collapse of travel demand and border restrictions due to COVID-19 crisis.

While the group experienced a strong first half in FY20, with an underlying profit before tax of $771 million, the COVID-19 pandemic delivered a massive revenue hit of $4 billion in 2H 2020.

Despite all odds, the group believes it is well positioned to harness benefits of the ultimate return of domestic and international travel demand. Given the uncertainty on travel demand and border restrictions, the group expects its recently announced 3-year recovery plan to provide a high level of flexibility, while also recognising the crucial nature of air transport to the nation’s economy.