Qantas has finally forecast a return to profitability after using up hundreds of millions of dollars in government support payments, enduring a couple of false starts as Covid went and then returned, and a surge in oil and fuel prices.
At the same time the airline confirmed offshore reports from the weekend of a major new series of jetliner orders that will see it break from Boeing and go with Airbus, especially for new ultra-long-distance flights.
In its third quarter trading update on Monday, Qantas said it expects underlying earnings before interest tax depreciation and amortisation (EBITDA) to be between $450-$550 million for the June half of the 2022 financial year, although a “significant full-year loss” is expected overall.
Qantas said expects to return to profitability in the 2022-23 financial year.
Goody said the market and bid the shares up2.8% at the end of the session to $5.76.
In the four months between the end of December last year and the end of April 2022, Qantas said the surge in demand, especially domestically saw a sharp rise in revenues and a fall in net debt dropped from $5.5 billion to $4.5 billion.
The airline said the return of “domestic travel demand ahead of expectations, solid international performance, and strong contributions from Qantas Loyalty and Freight drove significant levels of positive free cash flow in the quarter. Based on April trading and forward booking performance, free cash flow is expected to increase further in 4Q22.”
“Revenue growth during the third quarter has led to a rapid reduction in the Group’s Net Debt, from $5.5 billion at 31 December 2021 to $4.5 billion by the end of April 2022 to below pre-COVID levels. This compares to a peak of more than $6.4 billion at the height of border closures.
Based on current market conditions the airline says “net debt is projected to reach the bottom of the Group’s target range by the end of FY22.” (Which is $4.5 billion).
The airline said the full 2021-22 result will see it “post a significant full year Underlying EBIT loss for FY22 that includes the worst of the Delta and Omicron impacts as well as one-off restart costs”
But it said it is “on track for 2H22 Underlying EBITDA of between $450 million to $550 million based on current expectations.”
Qantas said its ‘group domestic’ business is expected to be profitable on an earnings before interest and tax (EBIT) positive in the current June quarter (the 4th of 2021-22). The airline says its “group international is on a clear pathway to full recovery.”
“Combined with benefits from the company-wide $1 billion transformation program, this trajectory supports the Group returning to profitability in FY23,” Qantas predicted.
Qantas also went out of its way to tell the market how it was coping (and covering) the hike in fuel prices – the short answer is, don’t expect too many genuine travel bargains domestically or internationally for a while.
“The Group’s (fuel) hedging position has provided significant protection from the recent spike in oil prices, giving time to adjust its capacity, schedule and fares in response. Ninety per cent of the Group’s fuel needs are hedged for the second half of FY22 at levels below current prices, Qantas explained.
“Strong demand for international travel – particularly direct long-haul flights – is expected to support recovery of higher fuel prices in the first half of FY23. Recovery of domestic fuel costs will be maximised by capacity reductions and some fare increases during July and August. The Group will continually assess and adjust these settings as necessary.”
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The new plane order of course attracted most of the media publicity on Monday – there’s nothing like a big silver bird with Qantas regalia on the tail and body to get journalists fondly remembering all those great flights up to 2019 before Covid so rudely interrupted everything.
To fly to New York and London non-stop from Brisbane, Sydney and Melbourne, Qantas is ordering 12 Airbus A350-1000s wide-body aircraft to service the routes.
As well other new airliners for the domestic business will be ordered.
In addition to the 12 Airbus 350-1000s (a new long-range jet from the European plane maker) domestically, Qantas will take delivery of 20 Airbus A321XLRs from 2024-25 and 20 A220s from 2023-24.
“This order also includes 94 purchase order rights as the airline’s existing Boeing 737s and 717s are gradually retired over the next decade.
“Qantas now has 11 Embraer E190s in operation via Alliance Airlines, which will grow to 18 by January 2023. These have opened up new routes including Darwin-Canberra and Darwin-Dili, as well as freeing up Qantas’ Boeing 737s on some existing routes to better match capacity with demand,” the airline said in a separate statement on Monday.
“It’s the last frontier and the final fix for the tyranny of distance that has traditionally challenged travel to Australia,” CEO Alan Joyce said in Monday’s statement.
He said the cabins in the new planes are being specifically designed for maximum comfort in all classes for long-haul flying.
The new planes are 25% more fuel efficient than previous generation aircraft and will carry 238 passengers in four classes, including first, business, premium economy and economy, and have a “wellbeing zone” in the centre so that they can exercise of take a break from their seats.
The first flight is due to take off from Sydney by the end of 2025 and comes after three research flights from New York and London to Sydney in 2019.
Not much mention of cost, but with so few passengers the pricing will be aimed at full fare paying business and wealthy customers. Qantas will not abandon the mass market flights to the US via LA (which is where the bargains for all classes of travel were to be found pre-pandemic).
The same will apply to the mass markets into Asia and Europe via Singapore or Bangkok where all those ‘bargains’ which are the bread and butter of travel groups like Flight Centre and Webjet.
