Qantas (ASX:QAN) share price on watch after cutting capacity due to the Omicron outbreak

Qantas is cutting capacity in response to the Omicron outbreak…

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A sad woman sits leaning on her suitcase in a deserted airport lounge as the Qantas share price falls

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The Qantas Airways Limited (ASX: QAN) share price will be one to watch on Friday.

This follows the release of an announcement after the market close this afternoon.

Why is the Qantas share price on watch?

The Qantas share price will be on watch on Friday after it revealed adjustments to its third quarter capacity settings for both the Qantas and Jetstar brands.

According to the release, the airline operator is reducing its flying levels to better match travel demand in light of the sudden growth in COVID-19 cases in Australia.

The Qantas Group now expects domestic capacity for the third quarter of FY 2022 to be at around 70% of pre-COVID levels. This is down from the 102% domestic capacity that had been previously planned.

The release notes that the schedule changes are focused on reducing frequency of services and size of aircraft to minimise inconvenience for passengers as much as possible.

It will be a similar story for its international capacity. Total group international capacity for the same period will fall from 30% to 20% of pre-COVID levels. This reduction is in response to increased travel restrictions in countries including Japan, Thailand, and Indonesia. The main impact is being felt on Jetstar’s leisure routes. Other markets, including London, Los Angeles, Vancouver, Johannesburg and India, continue to perform well.

Qantas also advised that both airlines have (and will continue) to have 100% of their available Australian-based crew stood up. It notes that this has helped to minimise the resourcing impacts of some needing to self-isolate during the summer peak.

What will the financial impact be?

At this stage, the company hasn’t got a clear picture in respect to the impact these changes will have on its earnings. It intends to provide a further update with its half year results next month.

Qantas Group CEO, Alan Joyce, said: “The sudden uptick in COVID cases is having an obvious impact on consumer behaviour across various sectors, including travel, but we know it’s temporary. Thankfully, Australia has one of the world’s highest vaccination rates and the Omicron variant is milder than its predecessors. So, as challenging as this current phase is, we’re optimistic that it is likely to fast track a return to normal.“

Mr Joyce also revealed that Qantas is well-placed to add capacity back if demand improves earlier than expected and reiterated that the company’s “focus on cash positive flying remains, notwithstanding some of the costs that we’ll have to absorb from this sudden drop in demand.”

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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