Qantas Extends International Flight Cancellations to July 2020
In its latest update, Australian carrier Qantas Airways (QAN) has provided a clearer picture of the company’s position amid the COVID-19 pandemic. The tourism sector continues to be hit as evident in the latest figures reflecting a 12.5 per cent drop in tourist arrivals in February 2020. Consequently, Qantas has decided to extend international flight cancellations from end-May through to end of July 2020.
Relative to the pre-crisis period, the group is presently operating around 1 per cent of its global network on an Available Seat Kilometre basis. Thus, Qantas will place its highly anticipated “Project Sunrise” plan to fly direct from New York and London on halt, ultimately putting on hold the order of twelve Airbus A350 planes.
Specifically, within its domestic operations, flight cancellations have been extended to the end of June 20200. Group’s CEO, Alan Joyce further revealed that the airline’s sister company, Jetstar could potentially slash airfares on the Sydney to Melbourne flight to as low as $19. Doing so could hopefully induce demand as soon as COVID-19 travel bans ease in the coming weeks. The cancellation of flights, in turn, implies that the group’s decision to stand down employees will subsequently be extended through till the end of June.
Regarding the firm’s financial health, Qantas has successfully secured $500 million in funding against three of its Boeing 787-9 aircraft. This follows the $1.05 billion raised in March 2020 against seven of its Dreamliners. While net debt currently sits within the middle of the anticipated range at $5.8 billion, the company has no existing or new debt facilities that will mature before June 2021. While there is a possibility that Qantas could raise another A$2.7 billion from aircraft when the time calls for it, it also aims to reduce its cash burn rate to that of $40 million by the end of June 2020.
Amid the recent oil shock, Qantas is fortunate to emerge out of the turmoil relatively unscathed. This is because the group’s fuel demand was entirely hedged for most of the financial year. Although this move yields significant upsides particularly in the first half of the year, losses were inevitably recorded as consumption and oil prices plunged to record lows in April 2020. In response to the situation, Qantas has closed out its over-hedged position till September 2020. Doing so will reduce the group’s exposure to further losses and therefore avoid the massive falls in oil prices.
On a more positive note, Qantas has turned a threat into a promising opportunity by capitalising on Qantas Freight. The segment witnessed exceptionally high volumes and has since achieved solid revenues for March and April 2020. Globally, twelve freighters have been heavily utilised on the B787 and A330 aircraft to transport local produce and medical supplies to countries such as Tokyo, Shanghai and Hong Kong. Likewise, the boost in e-commerce has, in turn, witnessed high volumes within the domestic freighter network, with demand in recent weeks surpassing levels associated with Christmas.
By Caroline Wong
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