The first shipments of a COVID-19 vaccine have been delivered to the United Kingdom in super-cold containers, two days before a much anticipated public immunisation program.
Back at home, restrictions continue to ease as the new COVID-normal sets in. ASX travel shares have been propped higher in recent weeks on the back of reopening borders. Could this see the Qantas Airways Limited (ASX: QAN) share price make a further recovery?
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December market update
Qantas expects to start repairing its balance sheet during the second half of FY21 as domestic borders reopen, cost reduction programs kick in and loyalty and freight divisions continue to help move the company into recovery mode.
Group domestic capacity is expected to increase to 68% of pre-COVID levels for December, rising to nearly 80% in the third quarter of FY21. This compares with the 20% capacity in the first quarter and around 40% in the second quarter of of FY21.
Trading conditions have also vastly improved to match the airline's rising domestic capacity. Over 200,000 fares were sold for flights to Queensland in the 72 hours after the border openings with Sydney and Victoria were announced.
The airline believes that changes in the broader domestic market have seen a number of large corporate customers move to Qantas this year, a trend that has accelerated in the past few months. Qantas expects to see its domestic market share of above 70% to be maintained.
Overall, the company will post a substantial statutory loss for FY21 but expects to be close to break even at the underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) level for the first half and net free cash flow positive in the second half. This assumes no material domestic border closures and no material international travel until at least the end of June 2021 beyond an increase in trans-Tasman flying to New Zealand.
Qantas freight and loyalty
Qantas freight continues to perform due to the spike in e-commerce volumes across its domestic freighter network and high yields on the international freighter network. To add some perspective, in the company's FY20 results, net passenger revenue stood at $12.18 billion while net freight revenue was at $1.045 billion. Qantas freight is also doing preliminary work on logistics for transporting COVID-19 vaccines at cold temperatures.
Qantas loyalty has been the group's most profitable segment with $1.224 billion in revenue and $341 million in EBIT in FY20. Financial services and retail partners have been the two main earnings drivers, followed by loyalty's own ventures.
Cautiously optimistic
A recovery is taking place for the beaten up travel and tourism industry, but Qantas Group CEO Alan Joyce remains cautious given the various unknowns. He highlights the uncertainty around the domestic economy, particularly once broader government support winds back, the dependency on a vaccine rollout and the standstill for international travel.
