Qantas has lifted its profit forecast for the December half by $150 million, saying limited capacity for international travel is seeing more Australians holiday at home.
The company announced an upgraded half-year underlying profit forecast of between $1.35 billion and $1.45 billion, up $150 million from its previous guidance given in October, which was itself an upgrade from its annual results in August.
Strong consumer demand propelled the airline's COVID-19 recovery, despite capacity restraints and high fuel costs.
Qantas said fuel costs remained significantly elevated compared with FY19 and were expected to reach about $5 billion, which would be a record high for the airline, despite international capacity at around 30 per cent below pre-COVID levels.
In a statement to the Australian Stock Exchange (ASX) on Wednesday, the company said net debt was expected to fall between $2.3 billion and $2.5 billion by December 31, about $900 million more than previously predicted.
Qantas said consumers are still putting a high priority on travel ahead of other spending, and there are signs that limits on international capacity and higher prices for overseas travel are driving more domestic leisure demand, benefiting Australian tourism.
Analyst Matthew Findlay from Ailevon Pacific Aviation Consulting said strong demand and limited capacity is driving higher airfares and bigger profit margins.
"Probably more demand than they've ever had before," he observed.
"That pent up demand is really coming through in prices, because people do want to travel.
"So they're willing to pay a little bit more, they might even have some savings that they're able to dip into, or even some credits that they're able to use."
Travel plans disrupted by the pandemic have left hundreds of thousands of Australians with billions of dollars of flight credits, but there have been issues around flight credit schemes, including incomprehensible terms and conditions and the inability to transfer them to family members.
The airline said that around 60 per cent of the $2 billion in COVID-related travel credits had now been redeemed by customers.
Total credit usage had reached about $70 million per month, it said, and the airline committed to announcing new initiatives so the remaining credits could be used by the end of this financial year.
'I don't believe it's price gouging'
While airfares hover around their highest level this century, Mr Findlay does not believe that Qantas, or other airlines, are gouging travellers.
"They're not the only one with higher fees. It's a global phenomenon right now and even travelling internationally," he argued.
"I don't believe it's price gouging, simply because it's a competitive market.
"Competitors come and go all the time, and we're very likely to see soon Bonza launch, which will be a new competitor in the market."
But many Qantas customers disagree.
Geoff Goodfellow has been flying with the airline most of his life, but no longer.
"I've got a Qantas frequent flyer card but I'm prepared to cut that in half, I've had a gut full of Alan [Joyce] and his tricks," he told ABC News.
"What he's doing to the Australian public is just absolutely horrific. He just keeps injecting more expense into every fare that you buy."
Book early to avoid higher prices
Mr Findlay said it was likely some more sale fares would creep back into the market.
"Qantas is conscious that they can't charge prices too high forever, because it'll turn off consumers, and so they will put sale fares out there just to try to attract consumers," he explained.
"They can charge as much as they like, but they know there's a point at which consumers will be turned off.
"And there is also a price point where consumers will say, 'Well, rather than fly I'll drive', or 'Rather than flying I'll have a Zoom [meeting]'."
Mr Goodfellow said he is approaching that point after paying almost a thousand dollars for a return flight from Adelaide to Melbourne in July.
"Adelaide to Melbourne return $928.76," he said.
"I mean, that's a joke, isn't it? Really. But that's what I had to pay. It's shocking.
"If I had a bit more time I would have jumped in the car."
Mr Findlay also said travellers could help themselves save money by buying their airfares at least a month in advance.
"Consumers, of course, are being hesitant at booking well in advance — they've been burned in the past with border closures and those sort of things," he observed.
"So consumers are leaving last minute purchases to book their travel, which of course means that you will pay a higher price."
Of the $400 million share buyback announced in August, 76 per cent has been completed at an average price of $5.66.
The airline flagged that low levels of net debt put the board in a position to consider future shareholder returns in February next year, consistent with Qantas Group's financial framework and phasing of capital expenditure for fleet renewal.
Australia Institute executive director Richard Denniss said it was a profitable time to run an airline in Australia because there is very little competition.
"And thanks to the choices of the airline, there's not a lot of flights, there's not a lot of capacity, and people are paying record prices to get onto those short, uncomfortable flights," Mr Denniss said.
Mr Dennis said Qantas received billions of dollars in taxpayer subsidies to keep it afloat during the pandemic.
"Qantas are charging prices that are way too high or wages that are way too low," he said.
"They're in a very good position to repay the incredible generosity that Australians showed them when times were tough."
Qantas has no plans to repay the government subsidies and said it received the money when the airline was not profitable.
