Qantas updates capacity settings on delayed Western Australia border reopening

Australia's Qantas Group has had to review its domestic capacity settings yet again after a recent decision by the Western Australian government to indefinitely delay reopening its borders as COVID-19 infections continue to ravage the country.

"Further to the capacity update provided by the Group last week -- which identified the WA border opening as a swing factor on its forward expectations -- this takes total Group domestic capacity for the third quarter of FY22 to approximately 60% of pre-COVID levels," Qantas Group said in a statement on Jan. 21.

Due to the decision by the Western Australia government to indefinitely delay reopening its borders, the airline will reduce its planned domestic capacity by about 10% from Feb. 5 to March 31 as a placeholder, it said.

Though at a fraction of its pre-COVID levels, Qantas will maintain core connections between Perth and the rest of Australia, with up to 15 flights per week from Sydney, Melbourne, Adelaide, Brisbane and Darwin, supporting essential personnel and freight, it said, adding that it retains the flexibility to adjust flying levels depending on demand and clarity on border reopening in the weeks and months ahead.

The timing to reinstate Qantas' Perth-London route, which is currently operating via Darwin and was due to return to Western Australia in late March 2022, is under review, it said.

Future prospects

The Australian Government's Department of Health data showed total cases at over 1.65 million and deaths at 3,103 on Jan. 23. Although the cases in Western Australia have been miniscule compared with other states -- total cases at 1,386 and 8 deaths as of Jan. 23 -- ever since the first case was reported, the authorities there are maintaining hardline border policies.

The prospects of near-term recovery in Australia's jet fuel demand remains bleak as a surge in omicron infections weigh on air travel plans despite the country's high vaccination rates, industry sources told S&P Global Platts recently.

Supply of aviation turbine fuel to Australia fell 29% month on month to 923,973 barrels in October, although it was up 11.9% year on year, the latest preliminary data from the Department of Industry, Science, Energy and Resources showed.

This marked the fifth month that imports were below 1 million barrels since the pandemic began. Jet fuel inflows dropped to as low as 27,675 barrels in May 2021.

Still, some traders were of the opinion the aviation sector remained on a general path to recovery despite the challenge of being subjected to snap border restrictions and constantly changing quarantine regulations that have dampened travel sentiment.

"I think in general, we are on a recovery trend on air travels. It feels more like a seasonal downward capacity [change] as we are out of the peak holiday travel period, but I feel its still a recovery trend for jet demand," a Singapore-based trader said Jan. 24, adding that there seemed to be some over-pessimism with regards to the airlines services sector.

Another trader agreed, saying that while omicron has impacted the tourism sector, the industry should bounce back once restrictions are removed.

"I think aviation demand will be yo-yo-ing during these few months, not only in Australia, but other countries too," the second trader said. "But still, people will try to travel especially if they need to, and are allowed to," he added.

At the Asian close on Jan. 21, the FOB Singapore jet fuel/kerosene cash differential was down 1 cent/b to plus 65 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessments. This was down 27 cents/b, or 29.34%, in the span of five trading sessions, Platts data showed.

"Australia's kerosene/jet demand is expected to slow in Q1 with rising COVID-19 cases in the country, but we still expect demand to improve in H2 as the COVID outbreak gets under control," JY Lim, oil market adviser at S&P Global Platts Analytics said earlier this month.

Australia's kerosene/jet fuel demand is expected to rise to 108,000 b/d in the second half of this year, up from 70,000 b/d in H1, but full year demand will average close to 46% below pre-pandemic 2019 levels, he said at the time.