Qantas Domestic Recovery Regaining Momentum
Qantas is expecting its domestic capacity to ramp up significantly as more Australian state borders reopen, but the recovery is still slower than the airline had projected.
The emergence of a second wave of COVID-19 cases in Australia in July caused many state governments to block or heavily restrict domestic interstate travel. This has caused Qantas’ domestic capacity to remain at less than 30% of normal levels, CEO Alan Joyce said during the airline’s annual general meeting (AGM). Before the border closures began, the airline was forecasting its capacity would have reached 60% by now.
The slower-than-anticipated domestic recovery has cost the airline about A$100 million ($71 million) in its fiscal 2021 first quarter, and will also hurt second-quarter results, Joyce said.
Some states have eased restrictions as case numbers have come down again. Assuming the state of Queensland opens its border to New South Wales (NSW) in the coming weeks, Qantas predicts its group domestic capacity will recover to 50% of normal levels by Christmas.
“Essentially, this is a timing issue,” Joyce said. “We know the upswing will materialize—just later than planned.” He believes there is a strong latent demand for domestic travel. With most international travel unavailable, “we’re expecting to see a boom in domestic tourism once more borders open up,” Joyce said.
The closure of the state borders represented “a significant setback,” Qantas chairman Richard Goyder told shareholders at the AGM. However, there have been “positive signs” in the last month as South Australia, Northern Territory and Tasmania have opened their borders to most other states.
Victoria—which was hardest hit by the second wave—is bringing case numbers under control, and NSW is managing its clusters, Goyder noted. But he stressed “there is some frustrating inertia around the Queensland and Western Australian borders,” citing those states’ travel restrictions.
Regarding international markets, Goyder said it is “very encouraging” that quarantine restrictions have been lifted for travel from New Zealand to Australia. So far this only applies to travel in one direction, as New Zealand has yet to lift its restrictions and quarantine rules for inbound travelers from Australia.
There is also potential for travel bubbles with certain countries in Asia, Goyder said. The Qantas Group is “keeping a close eye on new markets that might open up as a result of these bubbles—including places that weren’t part of our pre-COVID network,” Goyder said. “By early next year, we may find that Korea, Taiwan and various islands in the Pacific are top Qantas destinations while we wait for our core international markets like the U.S. and UK to re-open.”
Competitive shifts resulting from changes by other airlines could also benefit Qantas, Joyce said. He estimates the Qantas domestic market share is likely to increase from about 60% before the pandemic to 70% as main rival Virgin Australia contracts.
Qantas’ international market share is also expected to grow when overseas travel eventually returns, Joyce said. This is because overseas airlines will probably “take a conservative approach to capacity and focus on opportunities closer to their own home markets.”