Alitalia is gone. NokScoot kaput. Dragon Air has vanished. Thai is only still around as the government will not let it collapse. Qantas has announced a 2B loss. We know the market is forward looking, but how far forward?

Pre pandemic Qantas was operating around 750 international flights per week. Almost 40% of this was to Asia. I think this will be derailed for some time. These markets are going to be impacted for some time, the current news from the Philippines for example is particularly bad. Qantas optimism of a return to international in December is just that, optimism.

Business has changed and we will not be travelling like before. Boston Consulting Group agrees (ok, I agree with them) and predicts the long-term impact will be more pronounced on business travel than leisure.

Again, BCG in a global survey of exec’s indicated 9 in 10 expect travel significantly less in the future.

This is the critical point for Qantas who operate, in their own words, the premium travel product leaving Jetstar to leisure. Even domestically business was around 40 percent of market and over 50 percent of domestic revenue.

Freight has been one of the areas for revenue and Qantas has capitalised. Adding, and converting freighters.

Looking at global oil sales as a leading indicator, since mid-June, there has been a change. The ratio of bullish long positions to bearish short contracted to 4.25:1 (58th percentile) from a peak of 6:06:1 (80th percentile) 10 weeks ago.

Bullishness has ebbed away due to rising infection rates in all the major oil-consuming regions. Governments are now expected to retain border quarantines through the northern hemisphere winter, which will delay the recovery in international passenger air traffic until 2022.

This is an industry that operates with enormous costs – fuel, aircraft, maintenance, and a workforce who at any one time (even during normal periods) two-thirds of which are not at work. Hearing an aircraft now has become a rarity and checking movements in Sydney, Brisbane, and Melbourne the daily totals are in the teens at best.

In the investor presentation, Qantas indicate FY22 will be 77% of pre-pandemic capacity, unfortunately, I think this is a best-case scenario.

This is one where I really hope to be proven wrong.

Gold. That was my FF status in 2019-20 and I’ve been gold for years. I only fly economy which means I used travel frequently. Let me rephrase, I did travel frequently. Last flight I took was 15 months ago. Indeed, that was the last time I even crossed a state border.

The current pandemic has smashed airlines. I am stunned to see Alliance and Rex ordering aircraft. These things are expensive to own (or lease) and operate even when running at decent airline metrics (available seat kilometres/ revenue passenger kilometres). And neither of these metrics are anything like healthy - not by a long shot. 

Is there pent up demand for travel. Maybe. Let’s look at current travel status. Global passenger aviation is making an uneven return. 

There are major differences among countries, international and domestic, short-haul and long-haul. Before the pandemic, global passenger aviation fuel consumption of up to 7-8 million barrels per day (bpd) was split roughly equally between short-haul (<1,500 km), medium-haul (1,500-4,000 km) and long haul (>4,000 km) flights.
 
Recovery, if we can call it that, has been in short-haul and medium-haul markets. Large domestic market travelers think China and the US have seen the largest return. International markets such London, Singapore, Hong Kong have been lacklustre at best.

Incredibly in the United States, domestic flights by the start of June were down less than 15% compared with the same period in 2019. International is at approximately half, higher than expected with major border closure policies in place.
  
In contrast, Heathrow remains basically empty. Compared with last 2019, domestic is down 77%, Europe 87% and outside Europe down by 92%. Hong Kong is worse if that is possible. Passenger numbers are down 99% compared to 2019.

To put all that into perspective, current global passenger aviation fuel usage is still less than 3 million bpd.

How does this impact the airline with the big rat on the tail? Dramatically. International is basically zero and domestic is still half but climbing. 

Qantas shares have made a significant recovery. We know the market looks forward, but in this case, I think the market is being too optimistic. The long-term impact on airlines is significant, and while I am confident with a strong balance sheet Qantas will be the leader going forward and likely to increase this lead, this is not going to be a place for growth or rapid return to normality any time soon.