Qantas forecasts domestic capacity will soon leap beyond pre-pandemic levels

By Jamie Freed

SYDNEY (Reuters) - Qantas Airways Ltd said it expected domestic travel would top pre-pandemic levels next financial year as it raised its forecast for the current quarter on the back of strong demand in a country nearly free of COVID-19.

A return to 90% of pre-pandemic domestic capacity in the fourth quarter ending June 30 will allow it to report positive cashflow and begin repairing a balance sheet burdened by extra debt that helped get it through the pandemic, Chief Executive Alan Joyce said on Thursday.

The airline entered the crisis with one of the industry's strongest balance sheets, though its biggest domestic rival, Virgin Australia, benefited from a bankruptcy restructuring that allowed it to cut fixed costs more than Qantas.

The priority for Qantas now is generating cash by offering low fares to stimulate demand and get employees back in the air rather than worrying about a quick return to profitability factoring in interest and depreciation, Joyce said.

"We may not be making a full statutory profit before tax with a lot of this flying," he told reporters. "We don't have to. We are here to reactivate and start things up again but we will be covering cash costs and we will be improving our balance sheet and they are the important things for us in this phase of the recovery."

Before the pandemic, Qantas relied on its domestic business and loyalty division for the bulk of its profits. With the exception of travel to New Zealand, the carrier's international business will be grounded until Oct. 31 and possibly longer depending on the pace of Australia's vaccination rollout.

Joyce said the international arm was burning through about A$5 million ($3.86 million) of cash a week.

Growth in domestic capacity is expected to continue into fiscal 2022, with low-cost brand Jetstar reaching 120% of pre-COVID levels and Qantas projected to be at 107%, the airline said.

Joyce said he was not prepared to say whether Qantas could return to a profit in fiscal 2022 on the back of the strong domestic capacity forecast.

"A lot depends obviously on whether the domestic borders stay open, a lot depends on when international starts, if New Zealand stays open a lot," he said.

The airline had been hobbled for months by state border closings over small outbreaks that decimated traffic on major domestic routes like Sydney-Melbourne and Sydney-Brisbane.

The recent rebound in demand now that state borders are open has also benefited Virgin Australia, which said on Thursday that 10 leased Boeing Co 737 planes would return to its fleet as part of plans that would see it reach more than 80% of pre-pandemic domestic capacity by mid-June.

($1 = 1.2953 Australian dollars)

(Reporting by Jamie Freed; Additional reporting by Shruti Sonal in Bengaluru; Editing by Anil D'Silva and Gerry Doyle)