Qantas shares have soared to their highest levels since the start of the COVID-19 pandemic in early 2020 after the airline confirmed that it was heading for a massive profit in the six months to December and for the full financial year ending next June 30.
The recovery had been on the cards with the strong closing half to the 2021-22 financial year, despite terrible passenger delays, lost baggage, staff shortages and poor publicity.
On Thursday the airline said aid it now expects to return to the black six months earlier than previously expected and post more than $1 billion in profits in the first half of this financial year.
One bit of financial data told the real story of the airline’s recover – its net debt is now expected to be up to $1 billion lower than the airline had been expecting at the start of this year.
It is now forecast to fall to between $3.2 billion and 3.4 billion at December 31, which is below the bottom of the target range of $3.9 billion to $4.2 billion.
In a trading update to investors on Thursday Qantas forecast an underlying profit before tax of between $1.2 billion and $1.3 billion for the December half (to be revealed next February, despite the higher jet fuel prices and inflation.
A big benefit for the airline will be the more than $7 billion in losses it has run up in the two and a half years of the pandemic.
The forecast topped most analyst forecasts which predicted Qantas to return to profit by the end of the 2023 financial year next June.
The shares leapt 12.6% at one stage early on to peak at $5.84 before sagging to end the day at $5.62 and up more than 8.5%.
Significantly the update revealed a very obvious set of announcements aimed at trying to to appease employees who have become disgruntled at the impact of cost cuts, poor job security, the public anger over poor service levels and lost baggage and the seeming indifference of management to the problems.
Qantas announced a wage adjustment for about 20,000 employees which will now see annual pay rises increase from 2% to 3% in recognition of the airline’s quick recovery, at a cost of about 40 million each year.
About 5,000 employees who have already agreed to 2% as part of their enterprise agreements will be automatically lifted by 3%.
Important as that extra is, the 3% is still less than half the current inflation rate so the wage rise actually entrenches real wage cuts for the staff and a gain for Qantas.
CEO Alan Joyce dismissed suggestions the airline’s growth may inflame tensions with employees and travellers who’ve been subject to poor service and working conditions, arguing the operational issues experienced earlier this year wreaked havoc across the entire industry.
“What’s become clear is delivering pre-COVID levels of performance requires more than pre-COVID levels of resources,” Joyce said in Thursday’s statement to the ASX.
He also denied that management was at odds with staff, despite multiple threats of industrial action over working conditions and pay.
“There is disengagement with a couple of union leaders, not with our employee base,” he said.
“Most employees are very pleased we’re offering $10,000 bonuses and significant improvements to staff travel. Don’t misrepresent a couple of union members with a grudge as representative of employees.”
Qantas said 75% of its flights have been on-time in October, it said, compared to 69% in September and 67% in August. Its cancellation rate has also improved, falling to 1.7% so far in October, from 2.4% last month.
But no joy for people expecting air fares to fall – Qantas made it clear they will remain high for the foreseeable future as the carrier grapples with a near-75% increase in the cost of jet-fuel, current high inflation and rising interest rates.
“Airfares have to be up because we are seeing fuel this quarter is 67 per cent higher than pre-COVID… It is still very volatile. We are also recovering the contingency with the lag in capacity we have in the system to maintain operational stability,” Joyce said.
Revenue for domestic travel has exceeded pre-COVID levels and the group’s domestic capacity will return to 100% by the end of this financial year, up from 94% in the December half. The group also revealed a new ticket sale on Thursday, with more than one million fares starting at $35.
Qantas said its international capacity will increase to 77% in the June half next year, up from 61% in the current December half.
Interestingly, Qantas revealed a sort of back stop plan to cost $200 million to try and cover capacity and staff shortages and cancellations over the rest of 2022-23.
“The Group will continue to invest in extra resourcing to provide a buffer against the challenges that impacted reliability earlier in the year, including unexpected sick leave spikes and supply chain delays for aircraft parts,” Qantas explained in yesterday’s statement to the ASX.
“This further $200 million investment for the remainder of FY23 involves rostering additional crew, training of new recruits and overtime in key areas such as contact centres.
“It also involves a conservative approach to scheduling that means around 20 per cent of the Group’s flying capacity will be left in reserve and can be called upon to reduce delays and cancellations.
“This includes up to 10 narrow-body, six wide-body and four regional aircraft on standby across Qantas and Jetstar.
“This capacity can be gradually added back as certainty improves and the additional cost is expected to be similarly temporary,” Qantas added.
In other words, Qantas is not convinced it’s on top of capacity and staff shortages and cancellations and will have standby planes, and presumably staff, to be called back to work when needed.
Put this contingency plan down to all the public criticism of the airline and Mr Joyce this year. It has obviously stung.
