Qantas: COVID-19 Capacity Reduction – again

Qantas reduces capacity even more

Qantas has announced further reductions to its flights and routes today in reaction to COVID-19 related fall in demand.

It is cutting its international capacity by about a quarter for the next 6 months. That means that between Jetstar and Qantas, the overall reduction compared to normal operations is 23% through until September 2020.

Here is how the reductions map out:

• Asia — down 31%
• USA — down 19 %
• UK — down 17 %
• NZ — down 10 %

Smaller aircraft and reduced frequency

Instead of chopping routes, Qantas has so far decided to use smaller planes and reduced frequency as its preferred way of downsizing capacity. So what does that mean in reality . . .

• A380 — 8 out of 12 will be grounded through until September. 2 are in maintenance leaving only 2 flying
• QF1 and QF2 will become Sydney-Perth-London instead of London via Singapore from 20 April
• Brisbane-Chicago route delayed. Will start in September instead of 15 April
• Brisbane-San Francisco route suspended from 18 April
• Melbourne – San Francisco route suspended from 18 April
• Sydney – Santiago – was to have a B787 on the route, but will continue with B747 until 1 August

Those changes are on top of already announced flight cancellations including:

• Sydney-Shanghai – suspended until mid-July
• Sydney-Hong Kong – flights halved from 14 to 7 per week
• Melbourne-Hong Kong – flights to from 7 to 4 per week
• Brisbane-Hong Kong – flights reduced from 7 to 3 per week

You can check out the full list of international network changes on the Qantas Website.

And for Jetstar:

• Melbourne-Bangkok flights suspended from 1 May
• Australia – Vietnam flights reduced by half from 1 May
• Australia – Japan flights reduced by 40%
• Gold Coast – Seoul – flights suspended from last week

“It’s hard to predict how long this situation will last, which is why we’re moving now to make sure we remain well positioned. But we know it will pass, and we’ll be well positioned to take advantage of opportunities when it does.”

Alan Joyce, Qantas Group CEO

Qantas and Jetstar had previously reduced domestic capacity by about 3 %. That now has been increased to 5 %. That means the total capacity reduction for the group changes from 4 % as announced on 20 February to 17 % for the last quarter of the 2020 financial year.

The Qantas group will try to use this period to accelerate maintenance on the equivalent of 38 grounded aircraft.

Affects on the Qantas finances

Alan Joyce is a mathematician by training and his crowning achievement at Qantas so far has been to put it on a much firmer financial footing. That makes it much stronger in withstanding the massive reduction in demand and dramatic share price drop recently due to the effects of the COVID-19 related share market panic.

It has nearly $2 billion in cash, $1 billion in credit, and close to $5 billion in unencumbered assets. To help with its financial situation it is cancelling the off-market buyback of shares it announced in February which means it will hold on to about $150 million it has in cash. However, it will still pay the promised 13.5¢ dividend in April. That’s probably a wise move. Not doing so might have led to another drop in the share price.

It’s also looking at cost-cutting, some of which is real, and some, more token:

• Management will get no bonuses
• Chairman will not be paid
• Alan Joyce will forego his salary (given his last performance-related bonus – not a huge saving)
• Board fees reduced by 30%
• Management pay cut by 30%
• Recruitment freeze
• Employees to take paid/unpaid leave

On the bright side

Fuel costs have been low, and given the failure of Russia and the Gulf states to agree to a production reduction overnight, will probably continue to be low, or even lower.

What about customers

First up, Qantas is waiving change fees for international travel booked from today until the end of March. BUT, it only applies to travel commencing up to 30 June 2020 and is limited to one no-fee change per customer. And you don’t get any free pass on any fare difference. Flight changes must be made 3 or more days before travel.

For pre-existing bookings where the immigration advice has changed – you might have a case to have your change fees waived. Check on the Qantas website.

Singapore First Lounge to close (temporarily)

Given the move of QF1 and QF2 to via Perth, and the suspension of most of the A380 fleet, the Singapore First Lounge will also be closed temporarily. The Business lounge remains open, and high-level status Qantas flyers will be directed there.

2PAXfly Takeout

These reductions would seem crazy in any other circumstances. But in COVID-19 circumstances, they seem like a reasonable and measured response to the reduction in demand.

The deferral of bonuses, pay etc for the board and senior management is more window dressing than anything else. Nonetheless, it is good to see them on the front foot on these PR related issues, as opposed to being behind the 8-ball.

I’m scheduled to travel on Qantas both domestically and internationally on both paid and points fares during the rest of the year. For me, the question is should I travel at all?

So far, I have not made a decision, but I might contact Qantas to see what the implications are for my next Qantas booked trip, should I decide to cancel or delay.

If you have booked travel with Qantas whether on points or paid for, I would recommend you do the same, so that you can make an informed decision when the time comes.