- Lately, Qantas shares have started showing signs of improvement. The shares have delivered a return of 56% in the last six months (as on 22 September).
- The Company recently highlighted that its tickets for Great Southern Land scenic flight were booked within ten minutes, thus, bringing the airline operator under the spotlight.
- Despite the uncertainty in the market, the Group remain well placed to take advantage of the subsequent return of domestic and the international travel demand.
- In light of the situation, Qantas has also made a three-year recovery plan.
ASX 200 player Qantas Airways Limited (ASX:QAN), the provider of the international and domestic air transportation services, has come under the spot after its shares delivered a return of over 56% in the last six months (as on 22 September). On 23 September 2020, QAN shares ended the day’s trade at A$3.940, up 4.509% from the previous close. QAN has a market cap of A$7.11 billion and around 1.89 billion outstanding shares.
Qantas belongs to the aviation industry, which was severely impacted by the COVID-19 pandemic-induced travel restrictions across countries globally. The Australian borders, at present, continue to remain closed. Only Australian citizens, residents and family of immediate family members can travel to the country. Australian Border Force liaison officers will collaborate with airlines at overseas airports to find those who should not get on flights to Australia.
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Qantas has also made specific changes in its services following the restrictions imposed by the government.
The Company, of late, has noted an increase in demand for its services, due to which it is experiencing delays in call wait times and the processing of flight credits, refunds, and other options. Hence, it has provided specific tips for managing the flights. The operator has also updated about network, inflight and airport services. Further, Qantas has urged Australian residents to download and activate the COVIDSafe app.
Great Southern Land Scenic Flight:
Recently, Qantas was in the news because of its recent Great Southern Land scenic flight. Travellers who were missing the travel excitement and were willing to meet their loved one’s interstate were offered the Great Southern Land' scenic flight using Qantas’ state-of-the-art B787 Dreamliner aircraft. The Dreamliner aircraft is generally reserved for international flights.
This would be a 7-hour trip with low-level flybys of distinctive Australian destinations across Queensland, the Northern Territory and New South Wales. It includes the Great Barrier Reef, Byron Bay, Kata Tjuta, Uluru, and the iconic Sydney Harbour.
The popularity of the flight could be visualised when its tickets were sold within 10 minutes.
A$500 Million Unsecured Bond Issue:
On 01 September 2020, Qantas approved the issue of a 10-year, A$500 million unsecured bond which is a component of its continuing debt maturity profile. Once it gets settled, the proceeds would be used for paying A$400 million in bonds which would expire in June 2021. These funds would also strengthen short-term liquidity.
The Group has no financial covenants on any of its debt.
An Overview of FY2020
FY2020 was the most challenging period experienced by the Company in its long history. Despite the uncertainty in the market, the Group remains well placed to take advantage of the imminent return of domestic and the international travel demand. Also, Qantas Freight and Qantas Loyalty supported the Group to generate considerable cash flow. The charter operations of the resources sector are also performing strongly.
While COVID-19 impact has raised a question over the survival of most of the airlines, the thing which distinguishes Qantas from others is that when the Company entered the crisis, it had a strong balance sheet. It has progressed swiftly to place itself well for the recovery.
QAN took some tough decisions in the past couple of months to safeguard its future.
A Peek into FY2020 Results:
- Underlying Profit Before Tax declined 91% to A$124 million.
- Statutory Loss Before Tax for the period was A$2.7 billion.
- In the second half of FY2020, Qantas A$2 billion revenue was impacted due to COVID-19.
- Operating cash for FY2020 stood at A$1.1 billion.
- The liquidity of A$4.5 billion supported the Company to manage uncertainty.
- Progress was made towards a three-year recovery plan.
The Three-Year Recovery Plan:
The three-year recovery plan includes:
- Reopening the network to react to developing demand patterns, adding power on a cash positive basis.
- Qantas started the restructuring of the operations to meet the modified market and give $1 billion in the form of savings every year from FY2023.
- Qantas raised A$1.43 billion to fund its three-year recovery plan and fast-track the recovery process from the present COVID-19 crisis.
Key Parts of the Plan in Progress or Completed:
- Nearly 4,000 of at least 6,000 redundancies would possibly be completed by the end of September 2020, with constant union discussion.
- Ongoing quit of nearly 20,000 staff members, allowing retention of core skills until work returns.
- Early retirement of the Boeing 747 fleet along with over 100 aircraft in storage.
- Raised A$1.4 billion in equity along with A$1.75 billion of long term debt funding obtained during the 2H FY2020.
The Group’s recovery plan allows for a high level of flexibility, seeing uncertainty concerning border restrictions and travel demand. At the same time, the Company recognising the critical nature of air transport to the Australian economy, Qantas has provided key assumptions and indicators in the present times.
- Considering border restrictions, 20% of the pre-COVID-19 Group Domestic capacity scheduled for August 2020.
- Recent sales activity indicates high levels of underlying travel demand when restrictions are lessened.
- Through its Loyalty program, the Company expects a strong cash flow contribution in FY2021.
- Domestic demand likely to remain robust due to growth in e-commerce.
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
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