Australia’s national carrier Qantas (ASX: QAN) is now spreading its wings again just like it used to in the pre-COVID world, just eight months after the federal government announced Australian borders would reopen in February 2022.
Qantas admitted that strong travel demand made it possible for them to recover from the COVID crisis and repair the balance sheet, therefore able to keep investing in areas to improve customer services and bring more customers onboard. Along with its low cost carrier brand Jetstar, Qantas launched over 1 million domestic sale fares today to anticipate the peak end-of-year holiday season.
The broader operating environment remains challenging as fuel prices remain high, not to mention rising interest rates and inflation that makes customers become more price-conscious than ever. However, robust demand indicates that people are prioritising spending on travel above other categories, which supports the Group’s ability to fully recover higher fuel costs through fares. Fuel prices are now around 75% higher than pre-COVID, compared with around 60% in August 2022.
Based on upcoming bookings, current fuel prices, and the latest assumptions about the second quarter, Qantas is expecting a $1.2-1.3 billion profit before tax for the first half of FY23. This is an optimistic target following five consecutive halves of heavy losses. Net debt is expected to fall to between $3.2-$3.4b by 31 December 2022, which is below the target range of $3.9b. As travel restrictions eased last year, Qantas was successful in reducing its debt from $5.9b in FY21 to $3.9b in FY22.
Qantas aims to improve its operational performance and efficiency on par with pre-COVID levels. Qantas Domestic’s punctuality rate increased from 67% in August to 69% in September, finishing ahead of its main competitor. This is, however, still below the 75% target due to some external disruptions such as weather conditions, air traffic control limitation, workers strikes, and busy school holiday period that resulted in staff shortages unable to keep up with flight demand.
Moreover, Qantas’ cancellation rate fell from 4% in August to 2.4% in September. As of October 2022, only 1.7% of Qantas flights have been cancelled, which makes Qantas a market leader and even better than pre-COVID levels. Missing bags ratio remained low at 6 per 1000 passengers in September and into October. These service improvements will hopefully help Qantas gain customer confidence and therefore boost sales performance.
Qantas also emphasises employee retention programs as part of its service improvement strategy. Around 3,600 employees who joined the Group after the cut off date for the retention program in mid-2021 will be eligible to receive 250 share rights to recognise their role in the accelerated recovery. Qantas also announced a change to the wages policy covering around 20,000 employees, as well as upgrading its staff travel program by increasing the benefits to employees and expanding access to more of their family and friends. To date, more than 10,000 new beneficiaries have been added.
“The fact our financial recovery has accelerated means we can invest more in rewarding our employees, who are doing an amazing job. We’ll spend an additional $40 million a year on permanent pay increases for our people on top of the $200 million in cash and share bonuses we’ve announced for our people.”, said Qantas Group CEO Alan Joyce.
Complementing their ambitious plan in customer acquisition, Qantas is going big on their employee retention programs as one of their low-cost-high-return strategies. Many researches show that keeping low employee retention has been proved to boost productivity, promote higher levels of engagement, reduce acquisition and training costs, which ultimately increases revenue.
Clara is a Business Reporter for The Sentiment.
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