Global aviation is still struggling to recover from the pandemic, as the Delta variant forces governments around the world to reintroduce coronavirus restrictions on travel.
Australia is no exception. Sydney and Melbourne are back in lockdown. But Qantas (QABSY) CEO Alan Joyce believes a robust recovery for the airline is just around the corner. The carrier is hoping to resume international flights from December and bring back half of its superjumbo Airbus (EADSY) A380s by the middle of next year. It also expects domestic business in the first half of 2022 to exceed pre-Covid levels.
Joyce spoke to CNN’s Richard Quest last week.
The domestic market was holding you up, it was the only revenue you had besides cargo, which I understand was profitable. But now the domestic market is gone too?
Joyce: The domestic market is very big, so there’s big states, and intrastate, like western Australia where you have to fly in, fly out for the iron or oil production. That’s booming and that’s probably nearly 10% bigger than it was pre-Covid. And then through Queensland, another big state, is still really strong with a lot of leisure traffic… So, we’re not quite back to zero. We’re at about 30% of our pre-Covid schedule domestically. And we do have freight, and we do have on top of that this loyalty program which generates a billion of dollars in cash a year, so we’re actually doing relatively well compared to a lot of airlines in a similar position.
Do you fear these latest lockdowns are going to cost you here?
Joyce: Our financial year starts on July 1, so we’re in it at the moment. And we said for this half [year], these lockdowns will cost us 1.4 billion [Australian] dollars… But again what I would say is that we’ve taken a huge amount of costs out at Qantas. We’ve unfortunately had to make nearly 10,000 people redundant, we’ve taken a billion dollars of costs out on an ongoing basis. So we know when it does open up, when the borders are fully open… we will produce a lot of cash and we’ll be able to pay down that debt. And we gave a forecast to market that our debt levels will come down to a range by the end of this financial year, with the assumption, which I think is a very strong assumption, that borders will open up before Christmas.
You’re hoping to start flights — Qantas International — to highly vaccinated, low-risk countries. How realistic is this plan?
Joyce: There’s still lots of things to be decided between now and then. One, we have to get the 80% vaccination rate and uptake here has just been amazing… So I think we’ll get there. We need to resolve this hotel quarantine issue. The plan is that hopefully vaccinated people could isolate at home until they get a negative test. And it could only be to countries that have the same level of vaccinations at least at the start. We think the west coast of the US is definitely there, London, Canada, Singapore and Tokyo — it’s a big operation that we could parole. And the [Australian] government, the prime minister and the rest of the government, have said that looks like a valid plan but still we have to see how this develops over the next few months.
You’re going to be one of the rare airlines next year that’s flying the [Airbus] A380?
Joyce: We are Richard. When we looked at the research that we’ve done here, the desire to travel once the borders open up and it’s safe to do, is massive. It’s three times the levels it normally is in Australia. There’s a lot of pent up demand to visit friends or relatives, to take that holiday. We did a new ad on the last week that was very emotional and it went viral — it was the number one video on YouTube in Australia for three days in a row because it talked about the hope of being able to get overseas again. So, we know that pent up demand is there and the A380 is a perfect vehicle… And when we look at Australia, we have limited slots at [London] Heathrow, the A380 helps us meet the demand at Heathrow because of its size. And the same to LA. There’s a scheduling window, all of our flights leave LA between 10:00 and midnight because of the curfew in Sydney… So you can’t add really frequency, so you might as well have a big aircraft that works.
Looking to the future, your real goal now is to be ready for reopening, isn’t it? Keep the lights on, keep the thing moving, don’t go bust but don’t miss the wave that you’ve already said earlier is going to arrive when you reopen?
Joyce: We are very ready. The great thing is with all the aircraft activated, we’re in a position where we’ve been training our pilots and cabin crew to be able to get back and be ready. We think once we get to Christmas we’ll be back domestically to over 100% of pre-Covid schedule. Actually for the second half of the [financial] year, from January to June, we’re forecasting 110% so we’re bigger domestically. We’ll have 70% domestic market share at least, a lot better than we had pre-Covid — that’s where we make the bulk of our money.
Our Qantas loyalty program is booming at the moment, we had 200,000 new members during lockdown believe it or not. It’s going to get great numbers in the next few years. And then we’ve got Qantas International and JetStar International, which we think we’ll start operating again next year. We’ve given very ambitious targets which we think we’re now even more comfortable to get to in 2024, getting some of the best margins domestically, 18% margins for Qantas domestically, 22% for Jetstar. We think our international business will return its cost to capital and actually get to a 15% return and we think Qantas loyalty in 2024 will make 5-600 million dollars. We will be back to be one of the most profitable airlines in the world if we meet those targets, one of the strongest airlines in the world.