Group leisure passenger revenue was 125% of pre-COVID levels in the June quarter and business travel revenue 90% of pre-COVID levels, despite disruptions and frustrations.
The mismatch between that demand and the ability of Qantas, and Virgin, to manage it with their small groups and, thanks to COVID and the winter flu season, volatile groups of employees, is why the return to air travel has been so troublesome.
Qantas’s response, as it has been for other airlines, has been to remove the capacity of its system so that it is theoretically overstaffed to cover COVID-related stresses that, by their nature, cannot be forecast or planned for. .
Qantas survived the pandemic, with some help from the federal government, because it has had strong financial disciplines and is financially conservative.
When growing demand meets reduced capacity, airfares rise. The higher load factors and returns airlines generate make up for lost revenue from their reduced schedules.
That strategy is also allowing airlines to recoup jet fuel costs that have skyrocketed since Russia’s invasion of Ukraine. Qantas’ fuel bill is expected to be around $1 billion more this fiscal year than it was in the pre-pandemic fiscal year 2019, despite reduced international hours.
It is also buying Qantas breathing space to hire more people (it has hired around 1,500 since April) and upgrade its infrastructure to improve its interactions with its customers and their baggage.
Their cancellations have been steadily declining (they are down five per cent this month) and Qantas expects them to return to pre-COVID levels next month. On-time performance has a similar trend, as have statistics on lost luggage.
There is no doubt that, along with its finances, the Qantas brand has been damaged by the frustrations of its customers, but what is interesting, and what generates optimism within Qantas, is that it is not affecting the demand for Qantas services .
As Joyce says, the problems have affected Qantas’ physical operations, not its commercial business, which is now experiencing record levels of demand.
If operational issues continue to be resolved, Qantas expects to return capacity to the domestic market and indeed have 106 per cent of its pre-COVID capacity in the second half of this fiscal year.
International flying will be slower and more affected by higher fuel costs and the time it takes to get wide-bodies back into service. It will operate at about 65 per cent of pre-COVID capacity in the first half of 2022-23 and, Qantas expects, at 85 per cent in the second half.
Qantas survived the pandemic, with some help from the federal government, because it has had strong financial disciplines and is financially conservative. It raised $1.4 billion from shareholders at the start of the pandemic and another $800 million from property sales.
Those prudent decisions, coupled with a reduction in Qantas’ cost base approaching $1 billion, helped reduce the group’s debt from $6.4 billion at its peak to $3.9 billion, its lowest level since the global financial crisis in 2008, and has created the financial capacity for the share buyback program that Qantas announced with its results and that demonstrates its confidence that, finally, the worst of the pandemic is behind us.
The Business Briefing newsletter offers important news, exclusive coverage and expert opinions. Sign up to get it every weekday morning.