Qantas axes flights across group as coronavirus to hurt FY20 profit

Qantas axes flights across group as coronavirus to hurt FY20 profit

Qantas Group has announced temporary reductions to flights across Asia in response to a drop in demand due to the coronavirus outbreak.

The actions were announced as part of the group’s half-yearly financial results, where the net profit impact of coronavirus was estimated at between $100 million to $150 million for FY20 – a figure softened by lower fuel prices.

Reductions of around five per cent will be made to Qantas and Jetstar’s flying between Australia and New Zealand. There is no change to other key parts of the Qantas International network, such as the US and UK.

Qantas said reductions of around two per cent of total group domestic Australian flying in the second half are being made to reflect market demand.

The company said customers with existing bookings who are impacted by the reductions will be contacted directly and offered alternatives.

For most domestic bookings, this will involve slight changes to their departure or arrival times. For international bookings, customers can move flights to another date or connect through another Australian city.

Here’s a rundown of which flights are being scrapped:

International

Qantas International will cut 16 per cent of Asia capacity until at least the end of May, impacting flights from Australia to mainland China, Hong Kong and Singapore.

Sydney to Shanghai (the airline’s sole route to mainland China) will remain suspended, Sydney to Hong Kong has been reduced from 14 return flights per week to seven, Brisbane to Hong Kong has been reduced from seven return flights per week to four, and Melbourne to Hong Kong has been reduced from seven return flights per week to five.

Furthermore, Melbourne to Singapore flights will be operated by Boeing 787s instead of larger Airbus 380s, which will mean approximately 250 less seats per flight.

Qantas will reduce flights across the Tasman by six per cent, with cancellations on the Sydney- Auckland, Melbourne-Auckland and Brisbane-Christchurch routes. Jetstar will reduce its Tasman flying by five per cent.

Jetstar will cut its capacity to Asia by 14 per cent until at least the end of May, impacting flights from Australia to Japan and Thailand, and intra-Asia flights.

Cairns-Tokyo (Narita), Cairns-Osaka, Gold Coast-Tokyo (Narita), and Melbourne- and Sydney- Phuket will each be reduced by up to two return flights per week.

Each of the Jetstar airlines in Asia – Jetstar Asia (Singapore), Jetstar Japan and Jetstar Pacific (Vietnam) – have suspended flights to mainland China and are reducing flights across the region. In particular, Jetstar Asia is reducing total seats by 15 per cent.

Domestic

Qantas and Jetstar will reduce total domestic capacity by 2.3 per cent for the second half of the financial year to better match demand.

Most of these adjustments have already been published, with the balance to be made over the coming days. Cancellations are largely focussed on travel between major capital cities at off-peak times to minimise customer impact.

Qantas Group said demand for regional services is largely stable, meaning that recently announced routes will start as planned, including Sydney-Ballina (Byron Bay), Sydney-Mildura, Tamworth-Brisbane, and Sydney-Orange, as well as additional flights from Adelaide to Kangaroo Island and from Sydney to Bendigo. Jetstar’s new Melbourne-Busselton (Margaret River) flights are also unaffected.

Furthermore, Jetstar is looking at transferring an A320 aircraft from Jetstar to QantasLink to meet increased demand from the resources sector in Western Australia.

Qantas Group CEO Alan Joyce said the airlines were taking action now to limit exposure to softening markets.

“Coronavirus resulted in the suspension of our flights to mainland China, and we’re now seeing some secondary impacts with weaker demand on Hong Kong, Singapore and, to a lesser extent, Japan,” he said.

“Other key routes like the US and UK haven’t been impacted.

“We’ve also seen some domestic demand weakness emerging, so we’re adjusting Qantas and Jetstar’s capacity in the second half.

“What’s important is that we have flexibility in how we respond to coronavirus and how we maintain our strategic position more broadly.

“We can extend how long the cuts are in place. We can deepen them or we can add seats back in if the demand is there. This is an evolving situation that we’re monitoring closely.”

Joyce assured investors that demand from Asia will rebound, and the group will be ready to ramp back up when it does.

“These past few months have been extraordinarily difficult for the tourism industry and we’ve tried to minimise the impact of our capacity reductions as much as possible,” he said.

“About half of Qantas’ domestic cancellations are between Sydney, Melbourne and Brisbane, and we’re avoiding any route exits.”

Joyce noted that the capacity reductions are equivalent to grounding 18 aircraft across Qantas and Jetstar until the end of May, which he said in turn impacts about 700 full-time roles.

“To avoid job losses, we’ll be using leave balances across our workforce of 30,000 and freezing recruitment to help ride this out,” he said.

“We’ll also take advantage of having some aircraft on the ground by bringing forward planned maintenance.”

To stimulate travel demand, Qantas will today launch a Double Status Credits offer for all fares booked between 20 and 25 February on all Qantas-operated flights, while Jetstar has a number of discounts planned, with every domestic and international destination to be on sale over the next month.

Half-year profit falls slightly, but record revenue achieved

Credit: iStock/TkKurikawa

Qantas Group also revealed its financial results for the first half of the 2020 financial year today, with its statutory profit after tax falling two per cent to $445 million.

The group’s statutory result for the first half of FY20 included $123 million of transformation costs such as those associated with the continuing introduction of the Dreamliner fleet, redundancies and discretionary non-executive employee bonuses.

However, Qantas Group prefers to focus on its profit before tax (PBT), with its underlying PBT down 0.5 per cent to $771 million, and its statutory PBT down 6.2 per cent to $648 million.

The group’s underlying earnings fell two per cent to $900 million in the first six months of FY20 compared to the previous corresponding period, while revenue rose three per cent to a record $9.5 billion.

Qantas’ domestic underlying earnings declined by 2.7 per cent to $465 million, while its international business experienced earnings growth of three per cent to $122 million, and Qantas Loyalty impressed with 12 per cent earnings growth to $196 million.

As for Jetstar Group, its half-yearly earnings dropped 13 per cent to $220 million.

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