'We know the upswing will materialise': Qantas is still holding out hope of open borders as domestic travel continues to struggle

Photo by Paul Kane/Getty Images
  • Qantas had expected its domestic flights to operate at 60% of pre-COVID capacity by now, but state border closures have seen this level reach below 30%.
  • Speaking at the Qantas Group AGM, CEO Alan Joyce attributed this lower level to timing.
  • Qantas is also reducing its board member size from 10 to eight.
  • Visit Business Insider Australia’s homepage for more stories.

Qantas’ 100 year anniversary has been marred by the impact of COVID-19.

While the company had expected its domestic flights to be operating at 60% of pre-COVID capacity by this stage, state border closures have seen this level hover below 30%. It has resulted in a $100 million hit to Qantas’ earnings during the first quarter of 2021 and is expected to affect the second quarter as well.

Speaking at Qantas Group’s latest AGM, CEO Alan Joyce linked these results to timing, but sees an upswing in the future.

“Essentially, this is a timing issue,” he said in a statement. “We know the upswing will materialise – just later than planned.”

The pandemic has hammered Qantas’ operations, with the company forced to ground flights, cut 6000 jobs and stand down around 18,000 staff. It has also stopped spending on sponsorships and plans to review its ground handling operations to save costs.

“We know that our revenue will be significantly lower for some time – especially with the continued grounding of most international operations,” Joyce said. “The only antidote when you’re faced with less revenue is to lower your costs.

“We have identified $15 billion in cost savings over the next three years, mostly through reduced flying activity.”

The company is also reducing the number of board members from 10 to eight. Two company board members will retire – Barbara Ward and Paul Rayner – with the company not planning to replace them.

State border closures

Qantas Group Chairman Richard Goyder highlighted that while South Australia, Northern Territory and Tasmania have opened their borders to most states, there is some “frustrating inertia around the Queensland and Western Australian borders”.

“This inertia that doesn’t seem to be based on the actual health risk,” he said. “And that seems to ignore the broader economic and social risk involved with staying shut – especially as Federal income support winds down.”

The airline industry has been calling for state borders to open up, with executives from companies such as Qantas, Virgin Australia and Accor Hotels Pacific backing a petition to ‘Save Aussie Tourism’ by allowing state borders to open.

Should Queensland open its borders to New South Wales in the next few weeks, Qantas expects domestic capacity to jump up to 50% by Christmas.

“We know that latent travel demand is strong. We saw that with our ‘scenic flight’ earlier this month, which sold out in 10 minutes,” Joyce said. “And we saw it when South Australia opened to New South Wales, with 20,000 seats selling across Qantas and Jetstar in just 36 hours.

“With most international travel off limits for a while, we’re expecting to see a boom in domestic tourism once more borders open up.”

Joyce added that Qantas’ domestic market share is likely to rise from around 60% to 70% as its competitor (read: Virgin) “changes its strategy”. Virgin, having survived voluntary administration, has been undergoing a slew of changes under its new owners Bain Capital. The airline simplified its fleet, axed its budget Tigerair service and its CEO Paul Scurrah resigned.

Qantas expects its international market share to grow once overseas flights return. Some positive signs have already started emerging with the trans-Tasman travel bubble opening up and more travel bubbles expected in other countries.

“Both Qantas and Jetstar are keeping a close eye on new markets that might open up as a result of these bubbles – including places that weren’t part of our pre-COVID network,” Goyder said. “By early next year, we may find that Korea, Taiwan and various islands in the Pacific are top Qantas destinations while we wait for our core international markets like the US and UK to re-open.”

Qantas Wines has seen an uptick in revenue

Some of Qantas’ other business ventures have been performing well during the pandemic. Qantas Wines revenue jumped 75% in July and August compared to the same time last year, while Qantas Loyalty’s profit fell less than 10% in the 2020 financial year.

Qantas has also been branching out from its traditional range of products, selling bar carts from its retired Boeing 747 fleet as well as athleisure wear designed by Martin Grant.

“There is no doubt we’re in the middle of the toughest period the national carrier has ever faced,” Joyce said, pointing to positive signs ahead with the resumption of domestic travel.

“We will come through this crisis more efficient and more focused – ready to take advantage of the opportunities on the other side. With your continued support, we look forward to embarking on the next 100 years of Qantas.”

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