Qantas (ASX:QAN) share price nosedives as losses mount

Pandemic travel restrictions continued to hamper operations.

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Key points

  • Qantas share price falls on results
  • Revenue was up but so were losses
  • COVID-19 continues to hamper operations

The Qantas Airways Limited (ASX: QAN) share price is down 2.1% in early trade.

Qantas shares closed yesterday at $5.35 and are currently trading for $5.24.

Below we look at the highlights from the ASX 200 airlines financial results for the half year ending 31 December (1H FY22).

Qantas share price tumbles on losses

  • Revenue and other income increased 32% from 1H FY21 to $3.07 billion
  • Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) came in at a loss of $245 million, down from a positive $86 million in the prior corresponding period
  • Underlying loss before tax of $1.28 billion
  • Net debt decreased to $5.5 billion
  • No interim dividend declared

What else happened during the half year?

Pandemic travel restrictions continued to severely hamper operations during the half year. Qantas reported its total flying during the period was only 18% of pre-COVID levels.

However, the ASX 200 airline said it still managed to make "significant inroads to balance sheet repair". Crediting a surge of bookings when the Delta lockdowns ended alongside the cash it received from the sale of its land at Mascot, Qantas net debt of $5.5 billion ended the half within its target range.

The half finished strong, with Qantas reporting 3 consecutive month of positive net free cash flow from October through December, not including its land sale. The positive cash flow was mostly due to improved forward bookings.

Travel demand was again negatively impacted later in December with the spread of the Omicron variant, dragging on the Qantas share price. This occurred just as Qantas had decided to stand up all its Australian-based employees, leaving the airline with a temporary 17% surplus of its workforce in Q3.

Despite the headwinds, Qantas reported its recovery program is on track to deliver some $900 million in annualised cost benefits by the end FY22, ahead of schedule.

As at 31 December, the airline had $4.3 billion in cash and undrawn facilities.

What did management say?

Commenting on the results, Qantas CEO, Alan Joyce said:

We saw a sharp rebound in travel demand when borders started opening in November and December, only to be hit by the Omicron wave and all the uncertainty that came with it.

The uncertainty carried over into January but demand has started to recover as Australia adjusts to truly living with COVID. Our frequent flyer surveys show the intent to travel is extremely high and we're seeing good leisure demand into the fourth quarter. We've also seen a sharp uptick in international ticket sales in the past few weeks…

Despite all the uncertainty, we finished the first half with net debt back inside our target range and with strong liquidity, meaning we can start to look further ahead at strategic decisions on fleet, network and growth opportunities.

What's next?

Looking ahead, Joyce said, "Predictions in a pandemic are naturally fraught, so we always forecast according to the best information we have but with the agility to adjust as needed."

He said that the $900 million in annualised savings Qantas will realise through restructuring means it will be able to recover faster and perform better than it did before the pandemic.

Qantas estimates EBIT in the second half of the financial year will take a $650 million hit from ongoing issue with Omicron.

It expects domestic capacity to reach 68% of pre-COVID levels in the third quarter and hit 90-100% in the fourth quarter.

International capacity will recover more slowly, forecast to reach 22% in Q3 and 44% in Q4.

Qantas share price snapshot

The Qantas share price remains up 2% in 2022, compared to a year-to-date loss of 6% posted by the S&P/ASX 200 Index (ASX: XJO).

Qantas shares are still trading some 30% below their pre-COVID levels.

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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