Qantas hit with $16 billion revenue hole from COVID-19

The cost of the coronavirus pandemic continues to mount, but Qantas CEO Alan Joyce sees a recovery on the horizon.

By David Flynn, May 20 2021
Qantas hit with $16 billion revenue hole from COVID-19

Qantas says the ongoing impact of COVID-19 will amount to a $16 billion loss of revenue by June 2021, and it’s not out the woods yet.

The airline typically chalks up an estimated $8bn per year in revenue from international travel, which remains largely off the table until sometime in 2022.

A proposed October 2021 restart of the bulk of overseas flights has now been delayed to December and could see further pushback into 2022, in line with the federal government’s recent statement that the country's borders would not open until the second half of next year.

“We’ve adjusted our expectations for when international borders will start opening based on the government’s new timeline,” Qantas Group CEO Alan Joyce said in a market update this morning.

“But our fundamental assumption remains the same – that once the national vaccine rollout is effectively complete, Australia can and should open up.”

“That’s why we have aligned the date for international flights restarting in earnest with a successful vaccination program.”

Calls for a vaccination surge

Joyce also added his voice to calls for the government to bolster its vaccination efforts.

“Australia has to put the same intensity into the vaccine rollout as we’ve put on lockdowns and restrictions, because only then will we have the confidence to open up.”

“No one wants to lose the tremendous success we’ve had at managing COVID but rolling out the vaccine totally changes the equation. The risk then flips to Australia being left behind when countries like the US and UK are getting back to normal.”

As part of this, Qantas remains “optimistic that the opportunities for additional travel bubbles with other countries will increase significantly" from the end of 2021, “in line with the Australian Government’s revised timeline for effective completion of the national COVID-19 vaccination program.”

Qantas revealed the cost of state lockdowns which have also taken their toll, such as $400 million in earnings written off from Sydney’s Northern Beaches outbreak across December 2020-January 2021, $29 million from Brisbane’s lockdown in late March and $15 million from Perth’s three-day lockdown in April.

Strong domestic recovery

However, COVID’s hammer blow to the bottom line has been softened by the broader bounce-back of domestic travel.

Taken as an airline group comprising Qantas, regional arm QantasLink and low-cost sibling Jetstar, the group is on track to reach 95% of pre-COVID domestic capacity by the middle of this year.

Qantas can also take some solace in the continued recovery of business and corporate travel, which it says now stands as 75% of pre-COVID levels, while on the leisure front it sees “deferred international holidays converting into multiple domestic trips.”

Qantas expects to average 107% of its pre-COVID domestic capacity across the coming 2022 financial year, meaning it’ll be flying more passengers than before.

“The main driver is the rebound of domestic travel, which now looks like it will be bigger than it was pre-COVID, at least until international borders re-open,” Joyce said.

“We have a long way still to go in this recovery, but it does feel like we’re slowly starting to turn the corner.”

The airline is now forecasting a pre-tax loss of $2 billion for the 2021 financial year, with new cost-cutting initiatives to reduce debt and bring the books back into balance.

These will include offering voluntary redundancies to international cabin crew, slashing the commission paid to travel agents for international tickets from 5% to 1%, and a two-year wage freeze across the board.

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.