Covid cost cuts could lift Qantas profit, says Macquarie

Qantas is on track to eventually come through COVID-19 as a more profitable airline, says Macquarie Research.

Qantas has changed its procedures for passengers at airports, to limit contact and ensure the highest standards of hygiene. Picture: Qantas

New analysis predicts Qantas could emerge from the COVID crisis even more profitable thanks to a permanent reduction in costs of $1bn.

The Macquarie research by analyst David Fabris says the three-year recovery plan outlined by CEO Alan Joyce last week would “right size and restructure” Qantas.

Under the plan, Qantas and Jetstar would shrink to a combined workforce of 23,000, with $15bn in reduced costs over three years due to lower activity and $1bn in ongoing cost savings a year from 2023.

“Qantas should come through COVID more profitable,” Mr Fabris pointed out.

The airline group may have to wait until 2022 however, with the Macquarie research forecasting two consecutive years of losses.

An underlying before-tax loss of $45m was expected this year, and a $268m loss the following year, before bouncing back to an $876m profit in 2022.

“Shaping the recovery is challenging, but Qantas will manage this carefully with a strong focus on profitable flying, which is supported by cost initiatives,” Mr Fabris said.

“Our capacity forecasts are modestly below management guidance but include a faster domestic recovery versus a protracted international recovery.”

The research downplayed the likelihood of any domestic capacity war with Virgin such as that experienced in 2013-2014 with “destructive” results.

Mr Fabris was confident Qantas would maintain its 75 per cent share of the domestic market profit pool that had averaged $1.3bn over the last three years.

“While Virgin now has a new owner, it looks to be focused on a value proposition and profitable flying, with a smaller fleet,” Mr Fabris said.

With Virgin Australia officially under the financial management of prospective new owner Bain Capital from July 1, Qantas ramped up its marketing on Wednesday with the reopening of 11 domestic lounges and the launch of new routes from Sydney to Ballina and Orange.

Both routes were planned to start earlier this year but were delayed by the COVID crisis.

QantasLink CEO John Gissing said there was strong interest from travellers in the routes after months of lockdown.

“As the national carrier we have an important role to play in driving tourism and reviving the industry that has been devastated by COVID-19,” Mr Gissing said.

After slumping on the back of Mr Joyce’s recovery plan announcement last week, Qantas shares have improved in recent days, closing up 2.4 per cent on Wednesday at $3.87.