Qantas accelerates cost-cutting as cash flow turns positive

The Australian airline said it would book a loss before tax of more than A$2 billion in the year ending June 30. PHOTO: AFP

SYDNEY (REUTERS) - Qantas Airways on Thursday (May 20) announced fresh cost-cutting initiatives to help it weather the coronavirus crisis, and said debt had started to fall after it swung to a positive cash flow position in the second half of the business year.

The Australian airline said it would book a loss before tax of more than A$2 billion (S$2.07 billion) in the year ending June 30 due in part to aircraft impairment and redundancy payments.

However, it forecast annual underlying earnings before interest, tax, depreciation and amortisation (EBITDA) at a positive A$400 million to A$450 million.

Debt peaked at A$6.4 billion in February and is likely to fall below A$6.05 billion by June as domestic travel rebounds to near-normal levels, the airline said in a market update that sent its stock price up nearly 5 per cent in a flat market.

"The fact we are paying down debt is a significant milestone that shows we are on a sustainable footing," chief executive Alan Joyce told reporters.

Moody's Investors Service vice-president Ian Chitterer said the ability to start repairing its balance sheet was positive.

"We expect Qantas to emerge from the pandemic in a strong position and with an increased domestic market share and lower cost base," Mr Chitterer said.

In cost-cutting, the airline's new initiatives include a two-year wage freeze, slashing commission to travel agents on international tickets, and offering voluntary redundancy to cabin crew in its international division.

Qantas pushed back the resumption of sale of international tickets with the exception of New Zealand, to December from October, after Australia's government said it would likely not open the country's border to widespread travel until mid-2022.

The airline said its international arm was burning around A$3 million of cash a week, falling from A$5 million last month due to the opening of quarantine-free travel to and from New Zealand as well as strong cargo demand.

"That is important because the assets will be stranded for a bit longer," Mr Joyce said of the cash burn reduction.

He said Australia, which has largely eliminated domestic transmission of the novel coronavirus, needs to accelerate its virus vaccination programme because it was falling behind places such as Europe in opening borders to vaccinated travellers.

In domestic travel, Qantas expects capacity to reach 95 per cent of the pre-pandemic level in the three months ending June 30, and to top its pre-pandemic performance in the next business year.

Rival Virgin Australia said on Thursday it would add five domestic leisure routes and increase flying between Sydney, Melbourne and Brisbane by 30 per cent to meet growing demand from business travellers.

Qantas said its domestic business traffic had returned to 75 per cent of its pre-pandemic level in May, versus 65 per cent in April.

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