The return of domestic travel ahead of expectations and a solid international performance are expected to drive “significant” levels of positive free cash flow in the third quarter, Qantas said in an ASX listing on Monday.
“After a few false starts, we’re finally seeing a sustained recovery in travel demand,” said Qantas CEO, Alan Joyce.
“People have confidence in domestic borders now that we’ve shifted to living with COVID and that’s bringing us back towards pre-pandemic levels of flying,” Mr Joyce noted.
“The recovery in business traffic has been faster than we expected. Once mask mandates were removed and people went back to the office, there was a clear uptick in demand. We’re now at around 85 per cent of pre-COVID levels for domestic corporate travel and more than 100 per cent for small business."
The airline reported that strong revenue growth has reduced net debt from $5.5 billion at 31 December 2021 to $4.5 billion at the end of April to below pre-COVID levels. This compares to a peak of more than $6.4 billion at the height of border closures.
Qantas clarified that while it still expects to 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, the business is on track for 2H22 underlying EBITDA of between $450 million to $550 million based on current expectations.
According to the airline, group domestic is expected to be EBIT positive in 4Q22 and group international is on a clear pathway to full recovery supporting Qantas returning to profitability in FY23.
Following recent public uproar over a shortage of staff, Mr Joyce said Qantas plans to fill over 2,500 roles over the next 12 months.
“Our strategy has been to restructure the business so we could survive the pandemic and then recover quickly when travel normalised. That’s why reducing cost was absolutely crucial,” the CEO said.
“We’re seeing the benefits of that strategy now and it gives us the confidence to make the long-term investment decisions that are key to future growth and shareholder value.”
Also on Monday, Qantas announced the order of 12 Airbus A350s capable of flying direct from Australia to any other city including New York and London, starting from Sydney in late 2025.
“The A350 and Project Sunrise will make any city just one flight away from Australia. It’s the last frontier and the final fix for the tyranny of distance. As you’d expect, the cabin is being specially designed for maximum comfort in all classes for long-haul flying,” Mr Joyce said in a separate ASX filing.
Qantas is also planning a domestic fleet renewal from late 2023, with the order of A321XLRs and A220 aircraft.
“The A320s and A220s will become the backbone of our domestic fleet for the next 20 years, helping to keep this country moving. Their range and economics will make new direct routes possible, including serving regional cities better.
“These newer aircraft and engines will reduce emissions by at least 15 per cent if running on fossil fuels, and significantly better when run on Sustainable Aviation Fuel. This order brings us closer to our commitment to reach net zero emissions by 2050,” Mr Joyce said, adding that Project Sunrise will be carbon neutral from day one.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
