However, the key question remains: how much trust can be put into these forecasts given the ill-fated turn of previous predictions?
On the international end, which Qantas says will operate at 50 per cent to 70 per cent of pre-pandemic flying in the three months to June, there is little to no certainty. Australia, courtesy of omicron’s rampant spread, has seen the US Centres for Disease Control slap it with a “do not travel” warning, all while the European Union also removed it from a travel “white list” just last week.
White Funds Management boss Angus Gluskie says actual capacity “isn’t going to get to anywhere close” to the forecast levels.
“It’s almost definite that those capacity forecasts are going to be pushed out,” Gluskie said. “COVID-19 interruptions are continuing to develop and extend a lot longer than expected. People thought it would be done by the end of 2020 and then 2021. Now cases are still rising in many geographies.”
“They’re still going to have many weeks of case surges over the next month or so. It is going to occur just as Qantas is going to report their results,” he continued, “you can’t bank on any reopening until it’s actually happening.”
Reopened states a sign of more domestic certainty
But there are some signs that the domestic market could reach the 117 per cent of pre-COVID-19 capacity forecast for the June quarter, provided the demand is there. All states and territories except Western Australia have held their nerve on their reopenings so far, meaning Qantas is unlikely to face the snap border closures that previously threw a spanner in the works.
Tribeca Investment Partners portfolio manager Jun Bei Liu says the latest setback is only marginal for Qantas and has full confidence the airline can get swinging domestically.
“The recovery will be a massive time for Qantas. Omicron has pushed it back three months, but it is still coming,” Liu said. “The commitment from states to not go back into harsh lockdowns is a good sign of the recovery.”
“Domestic travel is far more certain now and, as soon as demand picks up, Qantas will increase capacity to pick up that demand.”
It’s also important to remember that domestic travel is the more important piece of the puzzle as it is the airline’s primary earnings driver. In both 2018 and 2019, Qantas Domestic represented nearly half of consolidated earnings.
Further, because of aggressive cost-cutting and restructuring over the past two years, Qantas won’t need to carry as many passengers as it did pre-virus to make the same amount of money – the airline can stick out low demand for longer than it could at the onset of COVID-19.
Jarden analyst Jakob Cakarnis says Qantas can break even on domestic trips with just over 55 per cent of seats taken and on budget subsidiary Jetstar that is even lower at about 43 per cent.
It is the lowest number of seats needed to break even in the domestic market, Cakarnis estimates, with Regional Express and Virgin Australia requiring closer to 80 per cent of seats filled to break even, ensuring that the market’s capacity and pricing will likely stay rational for the remainder of the calendar year.
“Qantas appears to have both brands (Qantas and Jetstar) well-placed to weather the uncertainty of the stop-start domestic air travel recovery,” Cakarnis said.
Qantas will report its first-half results on February 24, hopefully giving a firmer idea of whether its June projections will fall prey to form or not.
(20min delay)