Qantas Group market update - increasing resilience for long-term recovery

The Qantas Group today announces that it has secured a further $550 million in funding against three of its wholly-owned Boeing 787-9 aircraft. This follows the $1.05 billion raised in March against seven 787-9s. 

Net debt is now within the middle of the target range, at $5.8 billion. The Group has no financial covenants on any existing or new debt facilities and no significant debt maturities until June 2021. 

The Group has sufficient liquidity to respond to a range of recovery scenarios, including one where the current trading conditions persist until at least December 2021. The Group currently has $2.7 billion in unencumbered aircraft assets and can raise funds against these if required. 

At the start of the crisis, the Group acted quickly to wind down cash burn through employee stand downs, a pause on virtually all capital and operating expenditure, and revised agreements with key suppliers. 

As a result, and based on current conditions, the Group expects to reach a net cash burn rate of $40 million per week by the end of June 2020. 

Since the last cash balance update in March, the Group has seen outflows including a $250 million bond repayment, elevated levels of annual leave payments from standing down more than 25,000 employees ahead of the JobKeeper program starting, and payment of bills from its pre-crisis levels of flying activity.

As at close of business 4 May 2020, total short-term liquidity stands at $3.5 billion, including a $1 billion undrawn facility. 

The Qantas Group is currently operating around 5 per cent of its pre-crisis domestic passenger network and around 1 per cent of its international network on an Available Seat Kilometre basis. On a flying hours basis – which includes charters for the resources sector at 75 per cent of pre-Coronavirus levels and passenger aircraft flying as freighters – the Group is operating 13 per cent of its domestic network and 6 per cent of international.

Under the circumstances, Qantas and Jetstar will now extend existing domestic and Trans-Tasman flight cancellations beyond end-May through to the end of June 2020. International flight cancellations will be extended through to end-July 2020.

The initial easing of government restrictions suggests some domestic travel may start to return before the end of July – though initial demand levels are hard to predict. The Group will continue to monitor the situation and can increase capacity with a minimum lead time of around one week.

As a result of the crisis’ impact on travel, the current stand down of employees will now be extended until at least the end of June. The impact of this stand down is deeply regrettable but has been greatly softened by the Australian Government’s JobKeeper program, which the Group commenced paying several weeks ahead of the official payment start date.

Qantas and Jetstar customers with bookings made through Travel Agents or third-party websites and are impacted by the cancellations for June and July, will need to contact them directly.

In response to feedback, for bookings ticketed in Australia, travel credit conditions are being further improved. Customers booked on Qantas and Jetstar flights disrupted by the Coronavirus crisis will be able to split travel credits across multiple future bookings. This is on top of an extended period of time to use the credit. 

Qantas Loyalty  continues to perform well, with external billings flowing from Frequent Flyer partners including financial services and retailers such as Woolworths. A partnership with fuel company BP has created a new opportunity for members to earn points via another consumer staple.

Before the Coronavirus crisis, two-thirds of all Qantas Points were earned on the ground, meaning that the opportunities for engaging the programs’ 13 million members remain high despite the pause in flying activity. A recent survey of members showed 85 per cent were planning to travel as soon as conditions allowed – a sentiment reflected in the fact most are saving their points for a redemption flight sometime in the future.

Qantas Freight  has seen high volumes and achieved strong revenue for March and April. Its 12 dedicated freighters are heavily utilised and the airline’s passenger A330 and B787 aircraft have also been used to move cargo on services to Shanghai, Hong Kong and Tokyo, facilitating export of Australian produce and import of medical supplies. The domestic freighter network has seen high volumes due to e-commerce, with demand in recent weeks above the peak levels normally associated with Christmas.