Coronavirus pandemic to make Qantas a leaner operation: Jefferies
Investment bank Jefferies has forecast major cost cutting at Qantas to help return the airline to profit in 2021.
Qantas is expected to emerge from the COVID-19 crisis a much leaner operation with about half of its current workforce and a greatly reduced cost base in response to much weaker demand.
Detailed equity research by investment bank Jefferies forecast staff costs for the Qantas Group to shrink to just over $2bn in the 2021 financial year, from $4.2bn in 2019.
Expenditure on fuel, aircraft and marketing were also tipped to be slashed in a move that could see Qantas return to profit in 2021 after a net loss of around $200m in 2020.
Currently more than 25,000 of the Qantas Group’s 30,000 employees are stood down, with between 1000 and 2000 likely to return to work in coming weeks as domestic flying increases.
Chief executive officer Alan Joyce is yet to address the question of workforce-size but last month conceded that capital expenditure, fleet and network would all have to reviewed.
“We need to think about what the Qantas Group should look like on the other side of this crisis in order to succeed,” Mr Joyce said while delivering the third quarter trading update.
The Jefferies report said the return of international travel was of less significance to Qantas than domestic operations, representing only 16 per cent of earnings.
The airline is currently operating no overseas flights following the end to the government-subsidised network on Monday.
More important was domestic business travel which was expected to remain subdued, the report said.
“It is likely we will have to wait for March 2021 before returning to monthly growth in passengers,” said the report.
“However … we are not expecting passenger numbers to return to growth over 2019 figures until the second half of the 2023 financial year for domestic and international. Our forecasts are on the basis Virgin Australia emerges from administration on July 1, 2020.”
Another report by Merrill Lynch research analysts Meredith Baxter and Kevin Wu, looked at the extent to which Qantas could discount airfares to stimulate demand without incurring further losses.
“Given fuel and staff cost saving, we expect ticket prices can be cut by up to 30 to 35 per cent in the first half of the 2021 financial year and still be cash flow neutral,” said the analysts.
“These discounts can be larger in the first quarter of the 2021 financial year, up to 40 per cent, given staff costs will in part be offset by Jobkeeper payments.
The Merrill Lynch report estimated the total cash burn by Qantas since the COVID-19 crisis forced aircraft to be grounded and workers to be stood down, was in the vicinity of $1.5bn.
Qantas shares continued to climb on the ASX on Tuesday, closing up 6.4 per cent at $4.93, their highest level since March 5.