Two steps forward, one step back. It’s a recurring nightmare for Qantas (ASX: QAN) but with another spike in COVID cases, the national carrier has again been forced to slash its flights as demand for travel instantly dries up amid fears of spreading the virus.
With the latest surge of COVID numbers across the eastern seaboard, Qantas has revised its expectations for its domestic flights, trimming their capacity utilisation from 102% to 70% for the March Quarter. Frustratingly for Qantas, the downgrade comes just one month after the Company reported its domestic capacity had returned to pre-COVID levels.
Despite this setback, international travel has not seen the same drop off in demand where the Company remains well resourced at a time when every other industry is facing staff shortages, after bringing their entire Australian-based workforce back last month.
“The sudden uptick in COVID cases is having an obvious impact on consumer behaviour across various sectors, including travel, but we know it’s temporary,” said Qantas Group CEO, Alan Joyce.
“Thankfully, Australia has one of the world’s highest vaccination rates and the Omicron variant is milder than its predecessors. So, as challenging as this current phase is, we’re optimistic that it is likely to fast track a return to normal.
“People are already looking beyond what’s happening now with early bookings for the Easter holidays in April looking promising for both domestic and international.”
Rising COVID cases, many of which are the latest Omicron strain, have resulted in a renewal of travel restrictions in Japan, Thailand and Indonesia but other major routes such as London, Los Angeles, Vancouver, Johannesburg and India continue to perform well.
“We have the flexibility to add capacity back if demand improves earlier than expected, but 70 per cent still represents a lot of domestic flying and it’s a quantum improvement on the levels we faced only a few months ago,” said Joyce.
“Our focus on cash positive flying remains, notwithstanding some of the costs that we’ll have to absorb from this sudden drop in demand.”
Given we are still in the midst of Summer holidays for many Australians, Joyce declined to comment on the financial impact that this latest downgrade will have on the Company but confirmed that the priority was to retain “cash positive flying”. This will result in a change in travel arrangements for those who have booked tickets to flights being cancelled, to jump on a different flight instead to ensure higher capacity on the Qantas and Jetstar planes.
An assessment on the financial impact of these changes will be given at the Group’s half year results next month.
In their previous financial update prior to the onset of Omicron, Qantas had forecast an underlying EBITDA loss around $300 million for the half-year ending 31 December 2021. This will increase to more than $1.1 billion once non-cash depreciation and amortisation costs are included.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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