News: QAN UPDATE 1-Qantas domestic capacity running below 40% of pre-COVID levels due to lockdowns...

• Domestic capacity down from 90% of pre-COVID levels
• Outlook dampened through October due to lockdowns
• Staff could be stood down if they last longer than expected

(Adds details of previous forecast, outlook changes)

Qantas Airways Ltd's (QAN) domestic capacity has fallen to less than 40% of pre-COVID levels due to lockdowns in three Australian states, its chief executive said in a memo to staff, in a setback to what had been a strong recovery.

State border closures led to the sharp fall in domestic capacity from 90% of pre-COVID levels earlier in July and have dampened the capacity outlook through October, Chief Executive Alan Joyce said in memo dated Wednesday that was reviewed by Reuters.

The airline had in April forecast that domestic capacity would top pre-pandemic levels in the financial year that started on July 1 because of a rebound in demand.

Joyce said in his memo that if the lockdowns in New South Wales, Victoria and South Australia ended when scheduled, domestic capacity should return to about 60% of pre-COVID levels in August and up to 80-90% in September and October.

However, he warned that if the lockdowns last longer than expected, domestic staff face the possibility of being idled without pay.

"We're not at the point of requiring stand downs in our domestic operations at this stage," he said. "But to be honest, we can't rule it out if multiple states keep their borders closed for extended periods."

Australia has fared better than many other developed economies in keeping COVID-19 numbers relatively low, with just over 32,100 cases and 915 deaths.

However, mobility has been tightly controlled. The international border is closed with the exception of New Zealand, and states have often shut their borders to each other to stop small outbreaks from spreading across state lines.