News

7 Jul, 2022
Qantas boss warns of higher prices, more crowded planes
Financial Review

Qantas chief Alan Joyce says travellers should expect more expensive tickets to help the airline cope with a fuel bill set to surge $1.7 billion higher next financial year, all while he works to rescue the Flying Kangaroo’s spoiled reputation with a public sick of cancellations and delays.

There will be more staff on deck to help passengers and two wide-body jets on standby to ease disruption over the three-week July school holiday peak.

Yet Qantas will also remove 5 per cent of services from its schedule in July and August to cope with stubbornly high fuel prices. The airline will try to sell more seats on fewer services, which points to more crowded flights.

“The reality is that we are taking capacity out because of oil prices,” Mr Joyce said.

“We get a smoother operation because we still have the pilots, the cabin crew, and we still have the airport staff to meet that schedule. It gives us more flex in the system.”

Announcing new direct flights from Perth to Johannesburg and Jakarta alongside Premier Mark McGowan on Friday, Mr Joyce said his airline’s yearly fuel bill exceeded $4 billion.

He said airfares will have to rise because Qantas “can’t digest” the elevated cost of fuel. (Jet fuel was $US177.08, or $256.14, per barrel last Friday, according to the International Air Transport Association.)

This, combined with the reduction in capacity, would mean Qantas flights would be more efficient, he said.

“We need to get airfares up because our oil bill ... It’s [a] record high,” Mr Joyce said.

He reiterated that the staff shortages that have led to delayed and cancelled flights – Qantas dumped one in every 13 of its flights in May – and lost baggage were being experienced by airlines around the world.

In a market update on Friday, Qantas said it would have 20 per cent more staff on standby to minimise the toll of sick leave and absenteeism during the school holiday peak and had hired 1000 more staff.

The update, which also disclosed a one-off $5000 bonus payment to workers covered by industrial agreements on the condition that they accept new pay deals, had reduced its net debt to $4 billion by the end of the month.

This means it has paid off $1.5 billion in the past half-year, and has reduced net debt below its target range of $4.2 million to $5.2 million.

Jetstar CEO steps down

Jetstar boss Gareth Evans announced he would leave the low-cost airline next year. No reason was given for Mr Evans’ resignation. He was once seen as a potential successor to Qantas’ Mr Joyce, who said Mr Evans was a “superb leader”.

“He’s given an incredible amount to the organisation in several key roles, from his time as CFO through major restructuring and most recently as Jetstar CEO as we navigated COVID-19. When he leaves next year it will be with our sincere thanks and best wishes,” Mr Joyce said.

Mr Joyce said 85 per cent of flights on Friday morning were on time and the number of lost bags was coming down to pre-pandemic levels.

“Rightly ... we were hammered about the performance of the call centre,” he said. “We were having people waiting on average two hours and some people waiting five or more hours.”

The wait was because call volumes grew threefold, from 5000 to 15,000, Mr Joyce said. But the airline had since tripled the number of call centre workers compared with before the pandemic, and on Thursday the average waiting time was nine minutes.

‘Significant improvement’

“That’s still no excuse. We had to fix it, and we did,” Mr Joyce said.

“And in the next few weeks we should be seeing a significant improvement with all of these things we’re doing to make the operation more robust.”

Mr Evans will step down from the top job at Jetstar in December, but will stay on into 2023 “to work on key projects” before leaving the airline.

In a note to staff, Mr Evans said he was “grateful and fortunate to have worked in a wide range of roles across the Qantas Group, and I am excited about using these skills and experiences in new and different ways”.

”I’m committed to ensuring there is a smooth and thorough transition, so my plan is to step down as Jetstar Group CEO in December, then remain with the Qantas Group to work on key projects before leaving in 2023.

“Over the next six months we’ll welcome the arrival of our neos (Airbus A320neo jets), continue to grow Jetstar Airways’ domestic network, return our international operations to its pre-COVID capacity, and support Jetstar Asia and Jetstar Japan’s full ramp-up,” Mr Evans said.

7 Jul, 2022
Time for take off: Luggage brand July plans global stores as sales increase
Inside Retail

After a catastrophic few years for the travel industry, Australian luggage brand July is back on track and launching a new bricks-and-mortar presence in Sydney and the US.

The business, which saw sales fall more than 90 per cent during the worst of the pandemic when the travel industry was forced to shut down, is now enjoying a year-on-year revenue spike of 1500 per cent, and 50 per cent month-on-month.

July co-founder Athan Didaskalou said the business will be launching a store in Sydney’s The Galeries shopping centre in September, then focus on launching stores in New York and Los Angeles soon. 

“The secret sauce for us has got to be our physical retail,” Didaskalou told Inside Retail

“In the early days [of July] it was a bit of a flex for us – we knew there was a customer that would need luggage [to travel] the next day, and there’s no e-commerce solution for that. 

“But we’re starting to realise that, when we do our revenue per square metre [analysis], our stores are phenomenally profitable. We want to expand our physical retail presence as much as we can.”

July launched into the US in [2021] when travel in opened up again, and, while its budget pieces didn’t perform well in that market, it’s more premium ‘trunk’ style products are in constant demand and the business “literally can’t make them fast enough”.

And, following its successful expansion into the US, July is likely to try to gain a foothold in the UK with an eye to expanding into Europe.

Under one roof

Back home in Australia, the business’ physical spaces have continued growing, despite the slow return to international travel.

Throughout the pandemic, July decked out its warehouse and headquarters in Melbourne with a new coat of paint, and created a retail space at the front-of-house.

And, though Didaskalou admitted it can be hard to focus on work when customers are shopping just metres away, the feedback gained by having a direct line to its audience has already led to some product improvements. 

“For example, for our ‘carrier lite’ bags, a lot of people have come in and said its too small. And we’ve [been] sitting there, working and listening in, so we made it expandable,” he said. “That insight came from being able to just sit next to the retail store and listening to people.”

Working together under the one roof has also helped the July team to bond, with warehouse, retail and head office workers being able to meet and speak on a daily basis.

Australians “anxious” about delivery times

Throughout the pandemic, Australians’ confidence in shopping online grew by leaps and bounds, and when travel was back on the cards, July saw many more customers shopping its ranges online.

However, after the difficulties delivery providers have faced in the last few years, Didaskalou is seeing far more consumer confidence in buying online where click-and-collect is an option.

“In Australia, there’s still a bit of anxiety around when [online purchases] will arrive,” Didaskalou said. 

“Australia Post and other players have a big job on their hands, [but] people just don’t expect their purchases to arrive anytime soon, so the option for click-and-collect has made things so much easier.”

However, with only two stores in Melbourne and one to come in Sydney, most Australians are unable to use the click-and-collect option at July. 

The way the business deals with this currently is by having several warehouses across the country, and working with small, private courier networks that commit to fast deliveries. That way, if a customer in Perth, for example, purchases a product, it doesn’t have to ship from the other side of the country.

3 Jun, 2022
Flight Centre charts new course as cross-border travel resumes
Source: @lelia_milaya via Twenty20

As international travelling resumes after a two-year hiatus due to the Covid-19 pandemic, travel retailer Flight Centre is unveiling a new slimmed-down business model. 

In what the company describes as “Flight Centre Brand 4.0” the business will focus on embracing its three core assets: its people, its product, and its global retail footprint. The company believes it has developed an industry-first “blended ecosystem of technology and traditional booking systems” with the new model.

An omni-retail approach, blending the different ways Flight Centre clients book travel – in-store, on mobile or desktop, over the phone or via Flight Centre’s app – will be anchored on a soon-to-be-launched global website with what the company describes as “world-class booking functionality”.

The site will carry a standardised global brand, with regional and in-store functionality for bookable travel products, pricing, and promotions.

“We’ve used the past two years to right-size the business and reinvent Flight Centre after taking stock of our future ambitions,” said founder and CEO Graham ‘Skroo’ Turner. “Without leaving our core assets behind, we’re moving from a world of complexity to one of simplicity for our customers and consultants.”

Having repositioned the business to survive the pandemic, Turner believes that with the world beginning to exit that era, now is the time to focus on creating “a savvier and more streamlined business model”. 

“As such, we are improving the value and expertise of our consultants who will operate in a face-to-face environment, supported by the most sophisticated of online platforms.”

The new FCB business model features a dynamic and globalised pricing strategy, a consistent customer experience regardless of the location, an intuitive booking system dubbed Helio with an automated best-deal search engine and a single view display of end-to-end journey booking data visible to both client and consultant. 

“Our new online platform will feature a single booking portal that customers and consultants can access seamlessly, whether the booking is made in-store or online. Via our new omni-retail model, the business will increase its online sales to 40 per cent of total transactional value by 2025,” said Flight Centre Travel Group’s New Zealand MD David Coombes. 

The booking platforms are also designed to meet what Coombes describes as evolving customer demand for an ability to make decisions around their travel options that take into account their impact on climate change, but allowing carbon offsetting and transparency on CO2 emissions. 

 “Our suppliers are also taking positive steps to reduce their impact, with many of our preferred partners having implemented comprehensive environmental and broader Corporate Social Responsibility strategies,” he said. 

Coombes says travel has bounced back quicker than the company expected, leaving it trading at more than 60 per cent of the pre-Covid level – but with only one-quarter of the staff.

Flight Centre opened its first shop in Australia in 1982 and has since expanded into 27 countries with brands including its original red and white Flight Centre stores, along with Travel Associates, independents and, under its corporate arm, Corporate Traveller and FCM.

Turner says the company has grown a long way from its small beginnings.

“More than 40 years ago, I flew to London as a uni grad and had a hair-brained idea that buying a run-down double-decker bus would be a cheap, but effective way to drive around Europe. A few friends liked the idea too and pretty soon, we worked out people would actually be willing to pay to come along with us on some of our fun.

“That was the start of Top Deck Travel and became the catalyst for the birth of Flight Centre.”

3 Jun, 2022
Qantas trims flights as fuel costs bite

Qantas will trim domestic flying from 107 per cent of pre-COVID-19 levels to 103 per cent in July – when it will start lifting airfare prices – as it rebalances the local operation for higher fuel costs and lower demand.

It is the first Australian airline to announce capacity cuts with jet fuel costs straddling sky-high fuel costs stemming from the war in Ukraine. A barrel cost $US146.53 ($206.72) last week, down on last month but still double the price this time last year, the International Air Transport Association said.

Qantas will continue to monitor market conditions, but said it did not think these capacity adjustments would materially affect passengers because of “the large number of flights on most routes”.

“Those impacted will be contacted directly and offered different options. In practical terms, these changes will generally lead to a higher seat factor on flights across the group,” the airline said.

Virgin Australia chief Jayne Hrdlicka said earlier this week that the airline was operating north of 100 per cent pre-pandemic capacity. Virgin is factoring in higher fuel costs in its schedule planning.

Rex, which this week told the Daily Advertiser in Wagga Wagga it was “reviewing its entire regional network” as it battles Qantas for rural travellers, has also been contacted.

Qantas said the domestic market was otherwise performing well, following a bumper Easter period during which services buckled under the weight of what one executive termed “revenge travel”, despite the higher fuel costs.

“Fuel prices have kept rising over the past month and require the group to rebalance capacity and fares in response.”

The carrier had indicated changes were coming in a quarterly update earlier this month, when it also warned passengers to expect “fare increases during July and August”.

Qantas has not changed its international capacity for the rest of the financial year as demand is strong, and said it would operate 70 per cent of the overseas flights it did pre-virus in the September quarter.

The airline will bring its third Airbus A380 double-decker out of hibernation and return it to service on Melbourne-Los Angeles flights from June 6. It will also restart Jetstar services to Japan from late July as the country starts to relax its border rules. Qantas Sydney-Tokyo flights will restart in September.

It said demand for trans-Tasman flights was also high after the New Zealand border restrictions were relaxed, and that it would increase its frequency on some trans-Tasman routes soon.

Still, Qantas has delayed restarting Sydney-San Francisco trips for two more months until October 30 because of concerns about the availability of its Boeing 787 jets pencilled in to fly that route.

3 Jun, 2022
Companies Transport Aviation Print article Fleet renewal spurs Jetstar to target new international routes
Gareth Evans says Jetstar could grow sustainably even when travel demand and activity correct to normal levels because its cost base is 30 per cent lower than rivals’.

Jetstar will redeploy its older Boeing 787 Dreamliner planes to service brand new overseas routes amid a refresh of the fleet that is scheduled to start this July, chief executive Gareth Evans says, as the Qantas-owned budget carrier marks its 18th year of operations this month.

Mr Evans also apologised to passengers caught up in the disruption to Easter travel as staffing shortages hit airlines and airports, as well as forecasting an easing in pent-up travel demand over the coming months with the domestic travel market to shift back to normal levels of growth and sector dynamics.

He said Jetstar would still grow its market share in this environment, even as the industry became more crowded and fuel costs rose. But he stopped short of saying if the combination of such factors would send any of Virgin Australia, Regional Express, or Bonza – due to start flights later this year – to the wall.

“History would suggest this is a two-carrier market, with Qantas and Jetstar being one,” Mr Evans, who has led the low-cost arm since late 2017, told The Australian Financial Review.

He said the sky-high fuel costs were a big challenge for a low-cost brand like Jetstar and would result in some price hikes, but would be managed mostly through capacity adjustments. Jetstar operated at 110 per cent of pre-virus capacity over Easter, though Qantas will start pulling back flying from June.

17 May, 2022
Flight Centre gains altitude but earnings hit turbulence
Flight Centre says leisure-holiday transactions are back at 47 per cent of pre-pandemic levels

Flight Centre is the latest travel group to show losses are declining sharply as Australians take more trips, but the recovery is falling short of market hopes.

The travel company, whose brands include FCM and StudentUniverse, on Wednesday said its business division turned profitable in March, while its holidaymaker division was “close to break-even” that month.

The Brisbane-based group, said it would suffer a loss of $195 million - $225 million in its underlying earnings before interest, tax, depreciation and amortisation for the year ending June 30. That points to a loss of $11 million- $41 million for January-June, compared with a $184 million loss in the first half of the financial year.

The recovery was “well under way”, Flight Centre chief financial officer Adam Campbell told the Macquarie conference.

Still, RBC Capital Markets analyst Wei-Weng Chen said the full-year outlook was about 15 per cent below market expectations. He also highlighted that cash burn at Flight Centre had come “to an end”, with $2 million of cash generation recorded in March this year – although $4 million of that came from government subsidies.

The rate still compares favourably to almost $39 million bled in operating cash flow in December.

Shares in Flight Centre traded 6.1 per cent lower at $21.31 at 2.25pm AEST.

The guidance somewhat echoes Corporate Travel Management’s outlook a day earlier that showed a recovery but which also fell below some earnings expectations.

Flight Centre pointed to “ongoing industrywide growing pains during recovery”. This included tight labour markets, as The Australian Financial Review reported last week, and a lack of seats for international routes out of Australia.

Russia’s attack of Ukraine had not left any “noticeable impact” but Flight Centre was still monitoring the situation.

For the crucial leisure holidaymaker division, the company said total transaction value – measuring all the funds flowing through agencies, such as airline ticket purchases – was at 47 per cent of pre-COVID-19 levels in March. For business travel, it was at 76 per cent.

Corporate Travel’s shares were down 2.6 per cent at $24.30 in mid-afternoon trading.

The company had softened wording about second-half EBITDA. In February, Corporate Travel said it would be “stronger” than a normal season in which the earnings skew is typically 67 per cent in the second half. But the latest guidance was that the company was “still expecting” a two-thirds skew in the second half.

Citigroup analyst Samuel Seow said this implied $55 million in earnings, almost 30 per cent below market expectations. Even with boosts from buying Helloworld’s business division last year and benefits of any foreign currency lifts, he said the guidance was “still materially short of consensus”.

While Corporate Travel was finishing up the year with a solid rate of transaction volumes, some challenges were emerging including a larger mix of domestic travel, which had a lower revenue margin for the company, Mr Seow said.

UBS analyst Tim Plumbe said Corporate Travel continued to outperform competitors in transaction recovery levels and “we believe accretive acquisition opportunities remain, particularly in UK/Europe”.

Corporate Travel, which was previously targeted by short-sellers over its acquisition-led growth, has made two large acquisitions in distressed pandemic times: the $280 million Transport and Travel buyout and the $175 million acquisition of Helloworld’s business division.

3 May, 2022
‘Any city just one flight away’: Qantas confirms ultra-long haul flights from 2025
An Airbus-owned A350-1000 at Sydney Airport for the announcement of Qantas’ mega-deal for a dozen of the jets to operate ultra-long haul routes.

Qantas boss Alan Joyce is confident of strong demand for non-stop flights from Australia’s east coast to New York, London and other far-flung destinations, after unveiling a multibillion-dollar order for a new fleet of ultra-long range aircraft.

The airline on Monday confirmed an order for a dozen Airbus A350-1000 jets to operate the world’s longest flights of around 20 hours, starting with flights from Sydney to London and to New York in late 2025.

Joyce said the specially configured long-range jets would “make any city just one flight away from Australia”, with services likely out of Melbourne and possibly other cities as more jets arrive.

“New types of aircraft make new things possible,” he said at an event at Sydney Airport. “That’s what makes today’s announcement so significant.”

The terms of the order are confidential. Airbus last listed the A350-1000 model in 2018 for $US366.5 million ($520 million) each, putting the deal at $6.2 billion on paper. However, list prices are typically discounted by about 50 per cent.

Qantas believes the new jets will more than pay for themselves because passengers will pay more to avoid stopovers in places like Dubai, Singapore and Los Angeles, saving three hours on a flight to New York and four hours to Europe.

It will also load up the jets with a higher mix of premium, business class and first class seats, which will make up 41 per cent of the cabin compared to 30 per cent in its existing Boeing 787s and Airbus A380s.

The airline has spent almost five years working on its so-called “Project Sunrise” and had originally hoped to launch the record-breaking flights in 2023 but the COVID-19 pandemic put the project on hold.

Qantas selected the A350 for the project in late 2019, and Monday’s announcement marks a firm order for the jets and sets out a timeline for their delivery, with all 12 of the A350s to be operating by 2028.

Monday’s mega order also includes the first 40 of up to 134 Airbus A321XLRs and A220s to start replacing its domestic fleet of ageing Boeing 737s and 717s from late 2023.

Qantas, like almost all airlines around the world, endured a gruelling two years as the COVID-19 pandemic grounded air travel, running up more than $2 billion in combined losses and laying off around 9000 people, or a third of its staff.

But domestic travel demand has roared back quicker than expected and put the group on course to return to profitability in the 2023 financial year, it revealed on Monday. Net debt had dropped from $5.5 billion to $4.5 billion since the end of December.

“That demand, that recovery of our balance sheet, gave us the confidence to be able to place this order today,” Mr Joyce said at an event at Sydney Airport.

“And this fleet order is unbelievably significant. Qantas for 100 years has changed this business with picking the right aircraft at the right time.”

Analysts at Barrenjoey Markets estimated the whole order with Airbus would cost Qantas $6 billion to $6.5 billion.

High oil prices would be a headwind for travellers in the short term, however, with Joyce flagging it would have to hike ticket prices by around 7 per cent in July and August and trim its domestic capacity - from around 115 per cent of pre-COVID levels to 110 per cent.

Qantas said it was on track to deliver underlying earnings before interest, depreciation and amortisation of $450 million to $550 million in the 2022 second half, but a “significant” full-year loss that included the worst of the Delta and Omicron waves.

The A350-1000 is designed to carry about 350 passengers but Qantas’s configuration will seat only 238 across four cabins: six in first class, 52 in business, 40 in premium economy, and 140 in economy. A “wellbeing zone” will be available for passengers to stretch during their marathon flights.

The A321XLRs will not only have more seats than the 737s they replace (200 versus 174) but can fly around 3000 kilometres further, with a range of 8700 kilometres. That means Qantas can also deploy them on shorter international routes to South East Asia and the Pacific as well as domestically.

27 Apr, 2022
Virgin boss warns busy airports are here to stay
Ms Hrdlicka predicted airlines and airports would remain busy, especially around holiday periods, from here on in. Kate Geraghty

Virgin Australia boss Jayne Hrdlicka is warning passengers that busy airports are here to stay as the travel sector exceeds its pre-pandemic activity and dusts off two years worth of cobwebs.

Her comments come after an Easter long weekend where travellers battled immense delays and lost baggage. Ms Hrdlicka told The Australian Financial Review these issues were regrettable, but maintained that her company held up better than competitors and would work to ensure they are not repeated.

“We did as good a job as we could do,” she said. “There’s a natural dynamic at play here, where the industry was dormant for a couple of years with some activity, but a not a lot of concentrated activity.

“We’ve now had that concentrated activity – it takes a little for the processes and people to get to the level of efficiency that would have been the case two years ago.”

Still, prospective travellers hoping check-in and security queues will ease in future are in for a shock. Ms Hrdlicka, who was in Sydney on Wednesday to relaunch Virgin’s invitation-only lounge clubs, predicted airlines and airports would remain busy, especially around holiday periods, from here on in.

14 Apr, 2022
Vexed carbon credit scheme needs more oversight: Qantas
Mr Joyce said neither side of politics was moving fast enough to develop a local sustainable aviation fuel industry.

The clean energy regulator must clean up its act and more closely scrutinise its flawed carbon credit program because doubts about the scheme reflect poorly on the broader market, Qantas boss Alan Joyce says.

Mr Joyce, who on Thursday announced new interim sustainability targets at the airline, said he would welcome further regulation to weed out dishonest operators accumulating credits that fail to limit the nation’s carbon burden.

“These bad examples give a bad name to [carbon credits]. More regulation of them would be welcomed because you want customers to have confidence that the carbon offsets they are purchasing and investing in are of the utmost high quality,” Mr Joyce said.

Qantas purchases carbon credits, also known as Australian Carbon Credit Units (ACCUs), from the Clean Energy Regulator for its carbon offsetting scheme, where travellers can pay extra to offset their emissions while flying.

But ACCUs have faced criticism over the last week after a whistleblower said up to 80 per cent of those issued by the regulator are flawed and called for the government to remove the watchdog’s remit over the credits.

Qantas sustainability head Andrew Parker defended the company’s use of the scheme, saying it did not buy ACCUs from projects the whistleblower alleged had a flawed assumption of deforestation, been issued credits for “trees that are already there”, or changed rules around landfill gas projects.

“We want the highest possible standard for ACCUs in Australia,” he said.

“The specific criticism or specific projects in question are not the type of practices Qantas uses, and we welcome further scrutiny.”

Mr Parker said Qantas conducted its own extensive due diligence process on the ACCUs it purchased by visiting the project sites once every year to make sure they are fulfilling their regulatory obligation.

These comments came as Qantas unveiled interim sustainability targets for 2030 and a new agreement to explore carbon farming in the West Australian wheat belt region with ANZ and Japanese energy giant Inpex.

The first planting is expected in the winter of 2023, which they then hope to harvest and process, along with selected agricultural waste residues, into low-carbon renewable biofuels for aviation.

It is one of the first major steps in developing a sustainable aviation fuel industry in Australia, into which Qantas has committed to invest $50 million as part of its net-zero plan outlined in 2019.

Government ‘not moving fast enough’ on SAF

Mr Joyce said there had been productive chats with both sides of politics about developing a local industry, but Qantas still had to go overseas to buy sustainable fuels.

“We are incredibly passionate but don’t think either side is moving fast enough,” he said. “We, before COVID-19, spent over $4 billion a year on jet kerosene. We think, for a number of reasons this is a huge opportunity for Australia. The wheat belt project ... will create a huge amount of jobs.”

Qantas last year entered a deal to buy 10 million litres of biofuels from BP at Heathrow Airport to cut with normal aviation fuels on its Kangaroo route to London. On Thursday, it announced a similar deal in the US for 20 million litres of sustainable fuels to fly use at Californian airports beginning in 2025.

“We tried to do this behind the scenes, but unfortunately, you do have to make things public to make things happen and that’s what we are having to do to get there [on local sustainable fuels],” Mr Joyce said.

One of the key goals in the interim sustainability plan was to ensure 10 per cent of Qantas’s fuel mix was sustainable before 2030. Mr Joyce said it would “be a shame” if Qantas has to reach that by sourcing fuel offshore.

Among Qantas’s interim sustainability goals was a target to cut emissions by a quarter before 2030, phase out single-use plastics on flights by 2027 and aim for zero landfill waste by 2030. The company committed to building out its carbon offset program ahead of its broader net-zero by 2050 goal.

Mr Joyce said a benefit of setting these targets now was that it signalled to the market that there was a demand for sustainable aviation fuels.

“That will hopefully encourage more investment and build more momentum for the industry as a whole,” Mr Joyce said

“Responding to climate change is a big challenge, but we will get there. Partnerships with industry and all levels of government are going to be key to create the supply chains we need, and customers will have a role to play as well in supporting more sustainable options,” Mr Joyce added.

 

2 Mar, 2022
‘Frustrating’: Qantas says Omicron pushed back travel recovery by six months
The Sydney Morning Herald

Qantas boss Alan Joyce says the Omicron COVID-19 wave has set the airline’s pandemic recovery back by six months and expects domestic and international travel demand to return more slowly than previously anticipated.

The country’s biggest airline on Thursday reported a $1.28 billion underlying loss for the six months to December 31, worse than its $1 billion first-half loss last year, as flying activity fell to just 18 per cent of pre-COVID levels.

Mr Joyce said that with most of Australia in lockdown during parts of the half, the result “isn’t surprising, but it is frustrating”, while adding there had been a “sharp uptick” in international bookings and improved domestic demand in recent weeks.

However, the group cut both domestic and international capacity forecasts for the June quarter across both its Qantas and Jetstar brands.

Domestic flying would be 90 to 100 per cent of pre-COVID levels, down from earlier expectations of 114 per cent while international flying would be 44 per cent, down from 60 per cent, as major markets such as New Zealand, Indonesia, Japan, Hong Kong and China delayed opening their borders.

“There’s no doubt Omicron ... did slow down that recovery and there is a tail effect on this,” Mr Joyce said.“It’s pushed everything out by about six months from where we thought we would be.”

Domestic business travel was recovering the slowest, he said, but should bounce back in the coming weeks as the requirement to wear a mask in offices lifts in NSW and Victoria.

“[Removing masks] is a prerequisite to get people flying again, and a lot of corporates are telling us that,” Mr Joyce said.

The Omicron wave will cost Qantas $650 million in the June half, and another $180 million from “inefficiencies” such as bringing all staff back to work even while passenger numbers lagged.

Jarden analyst Jakob Cakarnis said these costs could lead to “meaningful” revisions to market forecasts for Qantas’ full-year earnings.

Qantas shares fell 5 per cent to $5.08 on the result, against a 3 per cent decline on the ASX 200 which was rattled by the military conflict in Ukraine.

Flight Centre managing director Graham Turner said even though Australia’s border was now open, travel was held back by restriction in some of our biggest travel markets like Japan, China, Fiji and Indonesia.

“People aren’t going to travel to Bali and spend three days in a hotel,” he said, after handing down his own half-year results.

However, Mr Turner said that based on discussions with major foreign airlines, international seat capacity into Australia was set to jump from around 22 per cent of pre-COVID levels currently to 60 per cent in April.

“Once the capacity is there everyone can start really pushing the advertising - there’s a lot more marketing and a lot more travelling both outbound and inbound.”

Air New Zealand chief executive Gregg Foran told this masthead on Thursday that only about 9000 people were booked to fly from Australia across the Tasman in the three weeks after Sunday, when the country will let arrivals isolate at home for seven days rather than enter hotel quarantine.

“It’s effectively a blip,” he said, when compared to the flood of travellers crossing the Tasman when the Australia-New Zealand travel bubble was open last year. “It’s good to begin the journey to get that down to a week but until it [the isolation requirement] is actually removed, you just have too much friction for people to travel en masse.”

Flight Centre shares fell 10 per cent to $18.09 on Thursday after it reported a $188 million first-half loss, which $52 million deeper in the red than consensus market forecasts. Mr Turner said the group should be profitable again, on a monthly basis, by the end of the financial year.

Air New Zealand’s dual-listed ASX and NZX listed shares fell 3.4 per cent $1.43, after it reported a statutory after-tax loss of $NZ272 million ($254 million), down from $73 million loss a year earlier.

Qantas reported earnings before interest, depreciation and amortisation of $245 million, which was $41 million worse than analyst consensus forecasts, as revenue grew $744 million to $3.07 billion.

Its statutory loss narrowed from $1 billion to $456 million, however, after it sold a parcel of land at Sydney Airport for $802 million late last year. That helped Qantas lower its net debt from $5.9 billion to $5.5 billion, which is the top of its targeted range and which Mr Joyce said positioned it to order new short-haul and ultra-long haul aircraft this year.

Qantas said it will give rights to 1000 company shares each - worth $5350 at their current price - to its entire workforce - 20,000 non-executive employees who over the past two years had endured long stand-downs and wage freezes.

The rights will convert to shares in August next year, providing the employees stay with Qantas and the company meets key targets in its “COVID recovery plan”. Executives - who have not been paid short-term bonuses during the pandemic - and senior managers will also be eligible for share-based bonuses next year.

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One file only.
5 MB limit.
Allowed types: pdf, jpg, jpeg, doc, docx.
* Required Fields. † For Designers, Design Assistants and Product Developers please attach your Portfolio including sketches, illustrations, trend boards, finished products etc... Please send through in pdf or jpg format. File uploads maximum size 5MB.