Qantas sees $4bn in jet fuel savings over three years

Australia's largest airline Qantas Airways is expecting around A$6bn ($4.12bn) in jet fuel savings over the next three years because of the weakness in international travel as a result of the impact of the Covid-19 pandemic.

Qantas plans to ground most of its international fleet as part of its plan to not use up to 100 of its aircraft for up to 12 months, with some planes to be grounded for a longer indeterminate period, as a result of the weak international travel volumes, Qantas said.

"It is clear that international travel is likely to be stalled for a long time," chief executive officer Alan Joyce said. Qantas estimates its domestic services to recover to 100pc of their pre-Covid-19 levels by 2022 and international services to be at 50pc of their prior levels over the same period, the airline said.

The International Air Transport Association last month said it does not expect global demand for air travel to return to pre-Covid-19 levels until 2023.

Border closures, consumer health concerns, changes in corporate travel policies and lower discretionary spending are expected to constrain passenger flight demand until 2022, Qantas said. The airline last week cancelled all international flights until late October because of the outbreak.

Qantas has given no overall figure for its jet fuel cost guidance for the 2019-20 fiscal year to 30 June since the guidance in March of A$3.74bn.

Qantas was fully hedged for the second half of 2019-20 and 90pc hedged for the first half of 2020-21, it said. The significant decline in flying activity, the group's overall capacity flown, has resulted in a substantial reduction in fuel consumption from April 2020 and the anticipated decline in consumption to June 2021 will lead to the non-cash recognition of hedge ineffectiveness of A$550mn-600mn in the 2019-20 results, it said.

The comments from Qantas accompanied its announcement of a capital raising A$1.9bn, comprising of an equity placement to institutional investors of A$1.36bn and a share purchase plan from existing investors of A$500mn, Qantas said.

Proceeds from the equity raising will be used to strengthen its balance sheet after the airline reported a A$2.8bn impairment charge in its 2019-20 results, with the bulk of the impairment from the write-down of the value of its A380 aircraft of A$1.25bn-1.4bn, Qantas said.

Most of the airline's long-haul aircraft are expected to steadily return to service over time, but there is significant uncertainty as to when flying levels will support its 12 Airbus A380s, Qantas said. These assets will be idle for the foreseeable future, which represents a significant percentage of their remaining useful life. As a result, the carrying value of the A380 fleet, spare engines and spare parts will be written down to their fair value, it said.

A further A$600mn-700mn of impairments will come from its restructuring plans, which include the cost of redundancies for the 6,000 staff the airline plans to lay off, Qantas said. The redundancies will be across both its Qantas and budget airline subsidiary Jetstar, it said.

"Despite the hard choices we are making today, we are fundamentally optimistic about the future. Almost two-thirds of our pre-crisis earnings came from the domestic market, which is likely to recover the fastest — particularly as state borders prepare to open," Joyce said.

"We are planning to be back to 40pc of our pre-crisis domestic flying during July and hopefully more in the months that follow," the airline said.

By Kevin Morrison