The Qantas Airways Limited (ASX: QAN) share price is on a path to recovery as its domestic capacity improves.
Qantas recovery in focus
The airline released an update today which gave insights into how the airline’s domestic operations are going.
Qantas said that there is extremely strong leisure demand right now, helped by the government’s half-price fare offer and the return of the majority of corporate and small to medium business travel.
As a result of the higher demand, Qantas is revising its estimates of reaching 80% of its pre-COVID domestic capacity for the fourth quarter of FY21 and is now expecting this to be above 90% as long as there are no significant border closures. Jetstar is expected to exceed 100% due to strong leisure demand.
All Qantas and Jetstar domestic crew are now back to work.
Is it making profit yet?
No. But its short term strategy continues to be generating positive cashflow rather than returning to pre-COVID profit margins. The impact of this increased activity will be relatively small, according to Qantas. However, low fares will continue to stimulate demand.
But, growth in domestic capacity is expected to continue into FY22, with Jetstar to reach 120% of pre-COVID levels and Qantas to be at 107%.
Qantas is focused on its market position, including network and frequency advantages, which puts the market share at around 70%.
What about the New Zealand bubble?
Qantas is seeing strong demand after the bubble was announced, with tens of thousands of bookings made in the first few days.
Flight bookings for the first few weeks of travel are stronger out of Australia than New Zealand. Qantas is expecting strong demand over the ski season.
Its international lounges in Sydney, Melbourne and Brisbane will open from 19 April 2021, to coincide with the trans-Tasman travel bubble. They have been closed for over a year.
Other international travel
Preparations are still being made for the resumption of international travel, with an expectation of reopenings in October.
Qantas said it has the flexibility to bring forward, push back or stagger the resumption of international flights to align with any government updates.
Summary thoughts
Alan Joyce, the CEO of Qantas, said that it’s important to keep this uptick in perspective. It’s still facing a massive financial loss this year. He said that COVID-19 vaccinations remain key to restarting flights in and out of Australia.
The airline will be one to watch if more international bubbles open up. Qantas can return to making good cashflow if domestic demand returns back to pre-COVID levels.
However, there are other ASX growth shares that may be more likely to generate good profit in FY21 and FY22.
