Omicron to cost Qantas $631 million in profit as recovery delayed

International capacity will be just 44 per cent of pre-pandemic levels by the middle of this year, Qantas said. PHOTO: REUTERS

SYDNEY (BLOOMBERG) - Qantas Airways said Omicron is delaying the airline's recovery and eating into earnings, with international travel wallowing at less than half normal volumes for months to come.

While demand has picked up since Australia's border reopened this month, the impact of the fast-spreading Covid-19 variant will cost Qantas A$650 million (S$631 million) of operating profit in the six months to June alone, the airline said on Thursday (Feb 24). That is more than the company's total earnings in the second half of 2019 - before Covid-19 smashed global aviation.

International capacity will be just 44 per cent of pre-pandemic levels by the middle of this year, Qantas said. "Omicron has pushed everything out by six months," chief executive Alan Joyce said on a call with reporters.

The projection underlines the lingering damage to the industry from Omicron, even as much of the world peels back border restrictions to kick-start international flights. In Asia - a key focus of Qantas's network before the health crisis - China and Hong Kong are effectively isolated as they attempt to control the virus rather than live with it.

The pandemic has now cost Qantas more than A$22 billion in lost revenue, and more than A$6 billion in income. The outlook overseas leaves Qantas facing an uneven recovery, and forces it to rely more than ever on its domestic business.

With internal borders in Australia almost entirely open, capacity on domestic routes should reach 90 per cent to 100 per cent by June. The airline has launched almost 50 new routes in the past 18 months to woo back travellers.

"The domestic picture is looking better every week," Mr Joyce said on the call. "Demand has started to recover as Australia adjusts to truly living with Covid-19."

The airline on Thursday posted an underlying loss before tax in the six months ended Dec 31 of A$1.28 billion as coronavirus restrictions destroyed demand. That is worse than the loss of A$1.01 billion in the same period a year earlier.

Qantas shares fell 2.3 per cent as of 11.30am in Sydney, in line with a broad market sell-off.

While overseas flying is still way below pre-Covid-19 levels, Qantas has seen rising demand for trips to destinations including London, Los Angeles and New Delhi. Direct Perth-Rome services will start in June.

Mr Joyce said there had been "a sharp uptick" in international ticket sales in recent weeks, and in the middle of February the airline notched up its best week for overseas bookings since before the pandemic.

Non-stop Qantas services connecting Sydney with New York and London, a project that had been thrown into doubt by Covid-19, are due to start as soon as 2024. Mr Joyce said he plans to conclude an order for the Airbus planes for those services by mid-year.

China, which is not expected to open its border until late this year at the earliest, holds the key to a full recovery in Asia. Mr Joyce said he hopes the nation will reopen in July.

Australia's border this month opened to international travellers for the first time in about two years. The nation had been almost entirely closed since the onset of the pandemic in March 2020, with only citizens able to return.

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