Qantas shares hardly reacted to an update from the airline that made it clear the airline will not recover for more than a year.
While it said its scheduled domestic capacity of flights has bounced back to almost 70% of pre-pandemic levels for this month and will hit 80% early next year, the missing 20% and international flying will take much longer to return.
But the 70% estimate is better than in its August results (when it announced a statutory $2.7 billion loss) when it forecast it would be at 50% capacity at Christmas.
Qantas shares ended down 1% at $5.49.
Qantas CEO Alan Joyce said that international travel, with the exception of flights across the Tasman, would remain at a “virtual standstill” until at least the middle of 2021, and then take years to recover.
“That’s why we remain focused on delivering on our recovery program, which unfortunately involves following through on some hard decisions to restructure and respond to the new set of circumstances we’re faced with,” Mr. Joyce said in a trading update released to the ASX on Thursday morning.
The airline said it was maintaining a strong liquidity position with $3.6 billion of cash and equivalents on hand.
The airline said it expects to start repairing its balance sheet during the second half of the 20-21 year (ie, the June 30 half), “as the impact of domestic borders re-opening, progress on cost reduction programs and the continued strong performance of Loyalty and Freight divisions help it move in to recovery mode.”
“While the Group will post a substantial statutory loss for FY21, it expects to be close to break even at the Underlying EBITDA level for the first half and net free cash flow positive (excluding redundancies) in the second half – allowing the repair process to begin,” the airline told the ASX in the update.
This forecast, Qantas said “assumes no material domestic border closures. It also assumes no material international travel until at least the end of June 2021 beyond an increase in Trans Tasman flying to New Zealand, though this could improve depending on the speed of vaccines rolling out.”
“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. We’re also facing a revenue drop of at least $11 billion this financial year alone compared to pre-COVID,” Mr Joyce said yesterday.
Looking at its finances, Qantas said that it “intends to maintain strong liquidity to protect against additional, unexpected shocks.”
“A significant backlog of supplier payments and refunds have now been cleared and, by 31 December 2020, approximately 50 per cent of redundancy payments associated with 8,500 job losses will have been made
“As at 30 November 2020, the Group had $3.6 billion in available liquidity – made up of $2.6 billion in cash and $1.0 billion in an undrawn revolving credit facility. This facility is expected to be increased by about $500 million before 31 December 2020 to provide additional standby liquidity.
“Since 30 June 2020 the Group has raised $715m of additional debt and a further $72 million from finalisation of the retail portion of its $1.4 billion equity raising earlier in the year.
“There are no further material debts maturing until April 2022 and no financial covenants on the Group’s debt. Net debt has risen from $4.7 billion at 30 June to $5.9 billion as at 30 November 2020<“ Qantas said in Thursday’s release.
Qantas said the recovery plan it announced in June “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.”
Part of this included a review of Qantas’ ground handling operations (announced earlier this week), with a decision made to outsource the remainder of this function and deliver savings of $100 million a year.
“Combined with changes at Jetstar, this will regrettably result in a further 2,500 people leaving the company, taking the total number of job losses across the Group due to COVID to 8,500. Of this total, more than 5,000 roles will have left the business by 31 December this year, the vast majority via voluntary redundancy.
Qantas said the recent increase in domestic travel has seen the number of full time equivalent roles increase from around 9,000 in October to 11,500 in December; “this is expected to increase to around 14,000 in Quarter Three. Currently, approximately 13,500 roles remain stood down.”