How Wine Sales Helped Qantas Cut Its Pandemic Losses

Photo credit:  Wikimedia / Vismay Bhadra

Qantas Airways’ full year results were awash with red as the carrier continued to weather the Covid-19 pandemic crisis. But there was at least one bright spot: wine sales.

Wine may not be top of mind when it comes to airline results. But at Qantas, a record level of point redemptions through the Qantas Wine shop and its other on-the-ground retail businesses helped generate a positive A$1 billion ($726 million) cash contribution from the airline’s loyalty segment to its overall results during the 2021 fiscal year that ended in June. The airline even added 200,000 new loyalty members during the year. While not enough to push the airline into the black — it lost A$2.4 billion — loyalty cash flows helped staunch the red ink.

This year was something of a roller coaster for Qantas. With nearly all of its international flying grounded amid strict Australian border restrictions, it relied on its domestic segment — including Qantas, QantasLink and JetStar Airways — during the year. At the peak it flew 92 percent of pre-crisis domestic capacity before new lockdowns forced it to par back schedules since June. Qantas plans to fly just 38 percent of 2019 domestic capacity during the September quarter.

It wasn’t much better across the Tasman Sea. Air New Zealand faced similarly strict border restrictions and a domestic segment that recovered to 93 percent of 2019 capacity levels during the fiscal year that ended in June. However, support from the New Zealand government helped reduce its loss to just NZ$289 million ($201 million). Cargo revenues, supported by the government’s Maintaining International Air Connectivity subsidy scheme, were a bright spot, jumping 71 percent year-over-year to NZ$769 million.

Both airlines are looking forward to when restrictions ease and travel can resume. While Air New Zealand opted to not provide an outlook at this time, Qantas is leaning hard on Australia’s Covid-19 vaccination campaign to resume much of its flying. As of August 25, more than 55 percent of Australians 16 and older had received at least one jab, according to government data. Qantas expects 80 percent of those eligible will be vaccinated by December, allowing the country to begin reopening — and the airline to rapidly resume flights.

Long-haul international services to other highly vaccinated countries, including New Zealand, the UK and U.S., could resume as soon as mid-December, Qantas Group CEO Alan Joyce said. This is in line with the guidance provided a year ago. Demand for these flights would be dampened if the country maintains mandatory quarantines for arriving travelers, thus the airline will initially operate smaller Airbus A330s and Boeing 787s wide-body jets on these services. However, the carrier expects demand to ramp quickly allowing to pull forward the return of five Airbus A380s a year early to July 2022.

“Given how well they have recovered, we expect travel demand on these routes to be strong enough for the A380,” said Joyce. The superjumbo jets would initially fly to London and Los Angeles. Of its remaining seven A380s, Qantas plans to retire two and return five more to service by early 2024.

In addition, Qantas remains committed to its plans to connect Sydney nonstop with London and New York, an effort known as “Project Sunrise.” The airline did not provide a timeline for when these services could begin and it has yet to finalize an order with Airbus for its preferred aircraft, the A350-1000.

Air New Zealand also unveiled fleet plans with its 2021 results. The carrier will retire its Boeing 777 fleet and replace the aircraft with 787s by 2027. It flew seven 777-300ERs and 14 787-9s at the end of June, and had eight 787s on order with deliveries resuming in 2024.

Qantas plans to fly between 20 percent and 55 percent of 2019 international capacity during the first half of 2022 — or the second half of its 2022 fiscal year. Flights to countries with lower vaccination rates, including Indonesia, the Philippines and South Africa, are unlikely to resume before next April.

On the domestic front, Qantas expects a rapid return of travelers as restrictions ease. The group plans to fly roughly 110 percent of 2019 capacity levels in the first half of 2022. The airline has expanded its share of the domestic market to roughly 70 percent following the restructuring of its main competitor, Virgin Australia.