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Why the Qantas (ASX:QAN) share price is under pressure

The Qantas Airways Limited (ASX: QAN) share price is in focus as the Omicron COVID variant hits the airline.

Qantas reduces flying levels

Both Qantas and Jetstar have adjusted their flying levels for the third quarter of FY22 to match the travel demand with how rapidly COVID-19 cases have spread.

The airline business is now expecting domestic capacity for the third quarter of FY22 will be at around 70% of pre-COVID levels, down from 102% that had been planned.

These schedule changes are focused on reducing the frequency of services and size of aircraft to minimise the inconvenience for passengers as much as possible.

Qantas’ total international capacity for the same period will fall from 30% to around 20% of pre COVID-levels. This reflects travel restrictions in countries like Japan, Thailand and Indonesia and is mostly impacting Jetstar’s leisure routes. But other routes including London, LA, Vancouver, Johannesburg and India continue to perform well.

A financial assessment of these changes will be given at the group’s half-year results in late February. Qantas expects a clearer picture will have emerged by then.

How does this affect customers and crew?

Customers will be contacted directly from late January if their booking is impacted by cancellations and offered alternative flights which will typically only be a few hours difference if travelling domestically.

Qantas and Jetstar continue to have 100% of their available Australian-based crew stood up, which has helped to minimise the resourcing impacts of some needing to self-isolate. The 100% crewing level will be maintained, giving both airlines a significant buffer to manage isolation requirements.

Summary thoughts on this and the Qantas share price

This seems like the wise thing to do. If passenger demand is falling again then it makes sense to reduce the amount of planes in the sky.

The Qantas CEO was confident that Australia’s high vaccination rate and the “milder” Omicron variant will lead to a fast-track of returning to normal.

It’s seeing bookings for the Easter holidays in April, which is looking promising for both domestic and international.

The airline can add back capacity if demand improves earlier than expected. The 70% of pre-COVID levels still represents a lot of domestic flying and is a “quantum” improvement on the levels seen only a few months ago.

It’s focused on cashflow positive flying, including some of the costs it will have to absorb from less flying.

Whilst Qantas is suffering from shorter-term impacts that Omicron is creating, there does seem to be light at the end of the tunnel. The picture is clouded by not knowing what future COVID impacts there could be and also how much international flying there will be in the medium term.

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.

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