Good morning, and welcome to the Qantas Financial Year 2021 Results Webcast. My name is Philip Kidden, and I am the Head of Investor Relations for the Qantas Group. Joining me today are Alan Joyce, the Group Chief Executive Officer and Vanessa Hudson, the Group Chief Financial Officer. I would also like to take a moment to acknowledge the traditional custodians of the land on which we meet today, the Gadigal people of the Eora Nation and pay our respects to Elders past, present and emerging. For those dialing in and participating today, please note this webcast will be recorded and a replay will be posted on the Qantas website.
I will now hand over to Alan to commence the briefing.
Thanks, Phil. And can I thank you and your team? Phil is our new Head I'm investor relations, and him and his team have done an amazing job in the lockdown and getting us ready for today. So thank you, guys. And I'm joined by Vanessa Hudson, our Group Chief Financial Officer.
So welcome to Our results presentation for the 'twenty one year, we're doing this virtually. And hopefully, this will be the last time we have to do that. We can get everybody in this room next year in February for the half year results. Because of COVID restrictions, it's just myself Vanessa, that's here at Mascotte. And the rest of the GMC are joining us virtually.
So we have Andrew David, Who's the Chief Executive of the Qantas Airlines and Head of Freight Garrett Evans, Chief Executive of the Jetstar Group Olivia Wirt, Chief Executive of Loyalty John Gissing, who's Chief Executive of QantasLink and Head of our Support Service, including Safety and Security Steph Tully, our Chief Customer Officer. And well done to Steph this week on probably creating the best ad in Australia. And the ad that's gone viral, I think, will help us get to those vaccine targets. Rob Marcellino, who's in charge of Strategy IT and Transformation and our people function. Andrew Parker, who is just appointed today to the Chief Sustainability Officer, We'll be talking a bit about how we're going to meet the challenges of sustainability and focus effort post COVID And having a dedicated role on the GMC, we think, is one of shows the importance of this function and what we need to do in order to And we have Andrew McGinnis, who's Head of Corporate Affairs and Government Affairs, I'm just taking over the Government Affairs function and will report directly to me on the GMC.
And of course, Andrew Finch, who's our Legal Counsel, who's in the room with us So thank you for everybody for joining us, and I'll be asking the GMC members to help answer the questions as we go through the presentation. So the financial year 2021 has brought the worst trading conditions in our history. International borders remained largely closed, and domestic travel restrictions impacted all but 30 days Of the year, only 30 days had no travel restrictions in it. Millions of trips were canceled and thousands of our people were stood down. We've managed huge operational challenges but also managed to deliver on some key things.
We have implemented the 1st year of our 3 year recovery plan. We have protected our balance sheet, And we've maintained strong performance in Loyalty and in Freight. As we all know, the recovery has been choppy, and we've Said that all the way through this pandemic, but the green shoots are here. In May, domestic travel Our domestic capacity was back at nearly 100% of pre COVID levels. Every time a lockdown ends, Demand bounces back quickly.
The next few months will not be without their challenges. But with the Vaccine rollout setting at cracking pace, we are expecting a return to much better and more stable trading conditions By the end of the year, our business has been transformed and strategically we're in a much better position than this time last year. Ultimately, this is good news for our people, our customers and our shareholders. Now turning to the details of our results. Despite losing over €12,000,000,000 in revenue compared to financial year 'nineteen, The group's disciplined cost control enabled it to deliver an underlying EBITDA of £410,000,000 Within the guidance range provided in May.
Allowing for substantial non cost Appreciation and amortization, the group reported an underlying loss before tax of $1,800,000,000 The statutory loss before tax was almost €2,400,000,000 due to impairment of aircraft assets and previously announced restructuring costs. Underlying operating cash flow was positive. A record performance for Qantas Freight, Strong cash contribution from Qantas Loyalty and a temporary recovery in domestic flying meant that the group Net free cash flow positive in the second half. Our domestic airlines faced well documented challenges, But their contribution of over €200,000,000 underlying EBITDA in the second half in the narrow windows They had to where they could actually fly shows the earning potentials when lockdowns are behind us. Liquidity has continued to remain strong with CHF 3,800,000,000 of cash and available facilities.
During the year, we processed substantial deferred payables, refunds and redundancies, which saw net debt increase to 6 £400,000,000 in quarter 3. Pleasingly, the return of domestic flying saw net debt rapidly decline From £6,400,000,000 in quarter 3 to £5,900,000,000 by the 30th June. This was lower than the position At the half year. Debt reduction remains a key focus, and our disciplined approach to capital expenditure Shows that, that that this shows this commitment. Net capital expenditure for the year was 693,000,000 Below the guidance of £750,000,000 for financial year 'twenty one.
We launched our recovery plan a year ago and are proud to Progress is ahead of our targets, delivering €650,000,000 of benefits this year compared to our target of €600,000,000 Our competitive position also remains very strong. We have around 70% of domestic capacity share, the leading Premium service and low cost carriers, the leading airline loyalty program, a cost base that has been structurally changed And record levels of customer engagement. Having stored shored up our liquidity at the start of the pandemic, We entered financial year 'twenty one with the dual focus of restructuring our business and restarting our domestic flying. Our focus has been getting our planes back in the air to generate cash and importantly, to get our people back to work. With international borders closed, we saw periods of very high domestic travel demand.
Our network teams managed to seize on that by announcing 46 new routes, which is frankly unheard of In such a short period of time. And it worked because 95% of our domestic flying was cash positive, Which is great news for supporting balance sheet repair. Our role as the national carrier was also clear As we conducted hundreds of charter and repatriation flights, many to destinations we have never flown before. We maintained vital freight links for Australian exporters and ensured critical connectivity to our regional centers and towns. Throughout the year, we've had a clear focus on customers.
We've helped customers with close to $1,000,000,000 in refunds And introduced unprecedented flexibility so they could book with confidence. Our FLOY Well program and recent announcements on vaccine requirements and rewards shows our committing commitment to creating a safe environment For our passengers and for our people. Qantas Loyalty expanded redemption opportunities In the air and on the ground and kept top tier members engaged with status extensions. And all of our progress in financial year 'twenty one gives us confidence that we are as we head into financial year 'twenty two, We are well positioned to capture travel demand when it returns. We are now well on track to deliver $1,000,000,000 of permanent cost benefits by financial year 'twenty three.
Importantly, as we have done in the past, we've had a parallel focus on offsetting inflation to ensure these benefits are fully realized. In financial year 'twenty one, we achieved $650,000,000 in benefits, which is ahead Of the €600,000,000 target we set ourselves, with over 90% of the initiatives completed or initiated, We expect to achieve GBP 850,000,000 by the end of financial year 'twenty 2. Unfortunately, this has involved some very difficult decisions to reduce our workforce. It is the harsh reality Of the impact the pandemic has had on our business, and we estimate that at least 8,500 People would leave the business by the end of June. This number has set at over 9,400 people.
Whilst a small proportion may return with activity over time, the vast majority will be permanent reductions. The remaining transformation will come from digitization, automation and simplification across our supplier base. This includes benefits from technology transformation, reducing cost of sales and shrinking our property footprint. All segments contribute to the $1,000,000,000 target. However, the vast proportion is allocated to Qantas Domestic and Qantas International, Significantly improving the unit cost performance once activity returns.
We've continued to measure our progress using a balanced scorecard. We are a year into our journey And have made good progress across our metrics. As we have outlined, our cost savings remained ahead of target, And we are confident our unit cost reductions will be met once activity returns. Balance sheet repair has commenced. And while the current lockdowns may delay this, we remain confident Of meeting our leverage targets by the end of calendar year 2022.
We have restructured our fleet, Deferred new deliveries, return the 747 and hibernating the A380s. The connection to our customers remains as strong as ever with record satisfaction across Qantas, Jetstar and loyalty. Our customers trust us and at a time of uncertainty, believe in our safety principles remains key. Understandably, employee engagement has been impacted by the uncertainty of stand downs but is expected to improve. We know for our people there's nothing more important than seeing our planes back in the air.
Our commitment to act responsible remains at the forefront of what we do. We know this is important to our shareholders, to our customers and to our people. We were one of the first airlines Commit to net 0 emissions by 2,050 and the 1st airline group to cap net emissions at 2019 levels. Our customer offsetting program uptake is amongst the highest in the world. Over the next 12 months, We plan to take this even further.
We will review our pathway to 2,050, updating our climate risk analysis And developing interim targets. We will continue to work with partners to investigate opportunity For the commercialization of sustainable aviation fuel in Australia. And there's no doubt the consequences of the pandemic Have been profound, particularly on our people. We remain focused on getting all of our people back to work. And our focus on cash positive line ensures that we will do that sooner.
For those impacted by stand downs, we've advocated for industry and income support And partnered with over 300 organizations to assist with secondary employment of our staff. And of course, nowhere was our community commitment more visible than working with the government on hundreds of repatriation flights to bring Australians back home. The spirit of Australia remains stronger than ever. I'll now hand over to Vanessa who will take you through the details of the group's results. Vanessa?
Thanks, Alan, and good morning, everyone. Throughout this presentation like we did in the first half, we will be comparing the group in the segment performance to pre COVID level. FY 'nineteen was the last full financial year unaffected by the pandemic and will be used for comparison purposes. Despite the setback of multiple lockdowns during FY 2021, the group reported an underlying EBITDA of CHF410,000,000 Depreciation and amortization non cash charges continue to impact the group's profitability. Underlying EBIT was a loss of €1,500,000,000 After interest charges, the group reported an underlying loss before tax of just over £1,800,000,000 At a statutory level, the group reported a £2,400,000,000 loss before tax.
This included $525,000,000 of items not included in the underlying results. The statutory operating cash flow Was a CHF386 million outflow and net capital expenditure was CHF693 1,000,000. Liquidity remains strong at $3,800,000,000 with cash of $2,200,000,000 at 30 June. We increased our revolving facilities to $1,600,000,000 in the first half and these remain undrawn And available should we need to use them. I will go into more detail on the key cash movements in a moment.
Net debt reduced in the second half £5,900,000,000 above our optimal target range of £4,500,000,000 to £5,600,000,000 Debt reduction is our main focus and we are confident of meeting our net debt targets by the end of FY 'twenty 2. You can also see on these slides some key metrics compared to pre COVID levels. ASKs were down 81% due to the low level of flying. Revenue was down $12,000,000,000 or 67%. Group operating expenses were also down 62%, Reflecting our ability to variabilize costs when travel remained low.
Now turning to the profit bridge on Slide 11. Comparing to pre COVID profitability in FY 2019, the overall decline in group total revenue was approximately CHF 12,000,000,000 This was partially offset by an AUD8.9 billion reduction in expenses, fuel, manpower, Aircraft operating variable and other expenses all reduced. This included the benefits from the restructuring program. However, the savings could not offset the significant decline in revenue. So the result for the year was an underlying loss before tax of just over £1,800,000,000 This compares with an underlying profit before tax of £1,300,000,000 in FY 2019.
This next slide shows the items not included in the underlying result for the year. The key callouts on this are £319,000,000 for redundancies and restructuring costs incurred as a part of the recovery plan and non cash impairments Of $257,000,000 including a further impairment to the Australian dollar market value of the A380 fleet Inclusive of 2 hulls which have been retired and will not return to service. Now turning to Slide 13. This shows the key movements in our cash position over the second half. With debt reduction commencing in the second half, financing cash Those totaled AUD 652,000,000 including a AUD 330,000,000 repayment of an AUD bond Which matured in June.
Through our disciplined approach to capital allocation, investing cash outflows for the half were limited to CHF208 million, The majority of which related to capitalized maintenance on aircraft. Like the first half, the underlying operating cash flow was positive Over CHF 1,300,000,000 including the strong contribution from freight and loyalty and the ongoing rebuild of revenue received in advance. The statutory net free cash flow was also positive even after allowing for one off outflows of 8 £37,000,000 for redundancies, refunds and deferred payables. Details of the movement in our net debt position are shown further Now turning to the detail of the segment performance, and I'll hand back to Alan.
Thanks, Vanessa. We're now on Slide 16 of the large presentation. Qantas domestic generated positive underlying EBITDA of $159,000,000 In the context of only 50% of pre COVID flying, it is a very good result and was underpinned by cost variabilization And network agility to respond to numerous border changes. The business saw a particularly strong 4th quarter When borders were opened by and led by strong leisure and business demand growth, capacity Actually grew to 86% of pre COVID levels and C factor rose to 64%. Coupled with stability in average fares, it gives us great confidence in the future.
As outlined previously, approximately €300,000,000 of the €650,000,000 in restructuring benefits achieved In financial year 2021, we're delivered in Qantas Domestic. The significant cost based transformation has improved its Competitive position and its yield premium compared to competitors has also grown. These measures We'll support our ambition of hitting an 18% margin target by financial year 'twenty four. With the recovery in corporate and SME demand ahead of expectations, our corporate position has also improved. We're winning a we won a total of 34 new accounts.
Of note has been the strength in resource markets, Which have seen additional A320s deployed to the West Coast of Australia to meet the rising demand. The ongoing international border closures changed patterns of demand And with the flexible fleet that included access to Embraer E190s, Qantas domestic launched 27 new routes. During the year, periodic border closures meant that many routes were uneconomical. With the support of the government's regional and domestic aviation network support programs, we were able to maintain service to ensure Vital links were maintained. Our customer and NPS remained strong, driven by Clear product offerings, including lounges and onboard free Wi Fi.
Now on to International. Similar to the first half, Qantas International was profitable at the EBITDA level As a record profit from Qantas Freight continued to provide a natural hedge to the passenger business. In an environment where almost all international passenger services stopped, demand for dedicated freighters remained strong. And the group's existing forators and the A330 passenger aircraft were deployed with greater frequency. This included flights to service the government's international freight assistance mechanism for key sectors Like agriculture and fisheries to ensure exports were maintained.
In the domestic market, surge in e commerce trends also saw Qantas Freight maintain its leadership, Underpinned by long term agreements with its key customers. Given growing customer needs, It's expanded its fleet with the first of 3 converted A321 freighters delivered during the year. And the second aircraft has just been delivered in recent days. Meanwhile, the international passenger business remained largely grounded, Maintaining readiness for a restart and progressing its restructured program with approximately €250,000,000 of benefits Delivered in financial year 'twenty one. Transtasmine flying was limited with capacities averaging 40% of pre COVID levels in quarter 4.
The charter repatriation of freight services Represented 8% of the flying performed pre COVID, unlimited domestic flights My international aircraft were also operated. It provided work for our crew maintaining their recency I continue to enable a substantial amount of the fleet to be operationally ready. Coupled with ongoing work On maintaining and extending its joint business agreements, Qantas International remains well positioned for restart on which we will talk about shortly. The Jetstar Group reported an underlying EBITDA profit of £2,000,000 excluding its share of losses from Jetstar Japan. The Australian domestic business also benefited from Strong leisure demand, effective cost variableization and €70,000,000 of recovery program benefits SORDA delivered a positive EBITDA of $145,000,000 for the full year.
The Q4 was particularly strong with capacity growing to 102% of pre COVID levels in May And the domestic business being profitable at the EBIT level for the quarter. Grew to 74%, and, pleasingly, ancillary revenue per passenger also grew 33% versus Pre COVID levels. The EBITDA profit of the domestic business covered the losses from the Australian International And the Jetstar Asia businesses, which remained largely grounded. Combined with the New Zealand business, Together, they generated £143,000,000 in EBITDA losses. Like many companies in the world, Japan has not been immune from multiple waves of lockdown.
Despite consecutive years of profit prior to the pandemic, Financial year 2021 saw Jetstar Japan generate losses. The group's share of the After tax losses on financial year 2021 was $131,000,000 As such, inclusive of associates, The overall loss for the Jetstar Group was €129,000,000 at the EBITDA level. Growth in the domestic market was supported by flexibility in fleet with 9 aircraft temporarily transferred to Australia from Jetstar On time performance remains strong as was MPS, which stood at record levels for the domestic business. With its low fares strategy, Jetstar remains well positioned to grow and to continue on benefit in the leisure led recovery. Now on to Qantas Loyalty.
Qantas Loyalty continued to provide strong and valuable cash flow to the group With over $1,000,000,000 of gross receipts in financial year 'twenty one. Pleasingly, Its diversified portfolio strategy also saw a return to EBIT growth in the second half of the year. Spend on Qantas Points. Spend on Qantas Points earning credit cards returned to pre COVID levels In the Q4 of financial year 'twenty one, an overall share of credit card spend was maintained at an impressive 35% As early indicators of renewed credit card demand emerged. The Qantas store and the Qantas wine So record points redeemed while Qantas Insurance continues to grow.
Loyalty is continuing to do a lot to support its members and keep them engaged. Things like an extension of silver, gold and platinum status A 50% increase in domestic redemption seats, a series of mystery flights that stuck a chord with high tier frequent flyers And the recent points auction, which maybe some of you took part in and had unbelievable points redemptions for things like Sky Bet seats and a special charter aircraft. We are confident flight redemption activity will rebound strongly Once the order is open. And our new coalition partners continue to perform well with 500,000 members Earning Qantas points with BPA since the partnership was launched. This was launched during the pandemic, and it's a great example Of the incredible power that our program can drive for partners.
We also expect an acceleration of earnings once travel activity Resumes. And longer term, we remain committed and confident of the target of €500,000,000 to €600,000,000 Underlying EBIT by financial year 'twenty four. I now hand back to Vanessa who will take you through the group's financial framework. Vanessa?
Thanks, Alan. We are now on Slide 21. As expected, the recovery phase has had a few ups and downs And the financial framework continues to guide our decisions as we navigate this volatility to a more predictable future. The first pillar is about maintaining an optimal capital structure that minimizes the Group's cost of capital. During the recovery phase, we have conservatively set the group's optimal net debt range at £4,500,000,000 to £5,600,000,000 Consistent with the invested capital position at 30 June 2020.
The second pillar is the delivery of ROIC Above 10% through the cycle. And the 3rd pillar is disciplined allocation of capital. With net debt above the target range, capital has been and will be prioritized to debt reduction and investment will be constrained to minimum levels. The group's proactive and conservative approach to securing liquidity continued. During the year, committed undrawn facilities were increased by £575,000,000 to provide access to cash liquidity for working capital shifts.
With total committed facilities of CHF 1,600,000,000 remaining undrawn, this gives the group significant financial flexibility to manage through any bumps in the recovery phase. The next material bond maturity is in May 2022 And funding markets remain open and we will continue our approach of refinancing these bonds prior to maturity. We have retained our investment grade credit rating and we have no financial covenants reflecting debt investor confidence in our strategies. And the group retains a pool of unencumbered asset including land valued at greater than 2 point Looking at Slide 23, you can see the group has a track record of strong operating cash flows. The significant cash generated in the financial Quarter of the final quarter of financial year 'twenty one gives us confidence that future strong cash generation can return.
The significant one off outflows that impacted financial year 'twenty one are complete and operating cash flows can return to at least pre COVID levels Through growth in the domestic operations and the restart of international flying, recovery plan savings, Cash flow benefits from deferred tax losses and working capital benefits including the ongoing rebuild of revenue received in advance So, we're seeing a significant reduction in the capital allocation of our capital allocation strategy. We're seeing a significant improvement in the financial framework management. We'll prioritize balance sheet as positive cash flows return. Financial 'twenty one fuel cost was $800,000,000 Down CHF3 billion from financial year 2019. This included the benefit of a 74% reduction in consumption due to Lower flying activity and the lower Australian dollar fuel cost.
Looking ahead and subject to further border closures, The first half of financial year 'twenty two fuel cost is expected to be higher than the same half in the prior year due to increased consumption. Our fuel and foreign currency hedging is being actively managed to reflect changes in capacity that might occur due to ongoing border closures. The first half of financial year 'twenty two fuel is fully hedged, Primarily in outright options aligned to current expectations for consumption, but providing protection from hedge losses should there be We have additional outright options to cover fuel price risk if flying increases under an accelerated recovery scenario. The financial year 'twenty two fuel and foreign currency hedging is consistent with our long term approach to managing this risk. We have a bias to options to allow high participation to lower fuel prices and to accommodate a range of consumption profile should they emerge.
We have continued to be disciplined on capital spend and our capital allocation is being prioritized to debt reduction. Net capital expenditure was CHF693,000,000 in financial year 'twenty one, below our guidance range of £750,000,000 This primarily included capitalized maintenance on fleet and the delivery of 1 converted A321 freighter. Financial year 'twenty two capital expenditure is forecast to be around 800,000,000 Deliveries of 3 789s and 2 A321neos have been deferred for another 12 months to meet the group's requirements. During the recovery phase, our fleet strategic priorities will be focused on minimizing capital and unchanged. The right aircraft for the right route, providing flexibility and maintaining competitiveness.
During the recovery phase, we are dynamically shifting our multi gauge fleet to meet demand. This includes The recently announced deal with Alliance Aviation to access up to 18 Embraer regional jets, The reallocation of A320s from Jetstar to Qantas to service resource markets in the West And deployment of 787s and A330 tails to support the freight assistance program on behalf of the government, Repatriation or domestic flying. In short, the group is well positioned to ramp up capacity in financial year To meet both domestic demand and the international restart. I'll now hand back to Alan.
Thanks, Vanessa. And now turning to our outlook. We're on Slides 2829. The outlook we present Today is based on the Australian government's COVID transition plan, which sets out the thresholds for lifting restrictions and borders opening. The important thresholds in the plan are that at 70% of vaccines of eligible Australians, we should see Domestic borders open, and by 80%, conditions for an international restart should be met.
Vaccination rates across Australia are ramping up and keeping pace with similar countries across each state. With vaccination supply plentiful from October, we believe that the threshold Of 70% will be reached by the end of November and 80% by mid December. These thresholds could be achieved earlier if rates of uptake remain at current levels. Together, this gives us confidence for network planning assumptions that all domestic borders We'll be open by the 1st December, and that gradual reopening of international borders will start from mid December this year. Now turning to the domestic market.
State lockdowns and border closures have had a significant impact On previously disclosed group capacity for first half of financial year 'twenty two, we have recovery delayed by approximately 5 months. Based on current case numbers, our network plan assumes that Queensland borders will open from mid September, Well, Victorian and New South borders will open from the 1st December. What we mean by that, it's Queensland to other states, Not including New South Wales and Victoria. As a result, group domestic capacity will operate around 30 8% of pre COVID flying in the Q1, 53% in the second quarter and growing to 110% In the second half of the year. Importantly, we retain agility to scale up Should circumstances evolve and obviously scale down if they need to be.
When borders open, we expect demand to be strong, And we also expect strength in the Resource sector to continue through the first half of financial year 'twenty two. Our group domestic competitive position remains strong with leading position in the low fare and premium segments. We expect to maintain around 70% of domestic capacity share, and both Jetstar and Qantas Plan to exceed pre COVID levels in the second half of 'twenty two. Now turning to the international outlook. We expect international border closures and quarantine restrictions to wheeze Once 80% of Australia's eligible population is vaccinated, in line with Phase C of the National Cabinet Plan.
We expect this to occur in December. And as such, we are planning for the resumption of flying to key markets With similar vaccination profiles. From mid December, Qantas plans to recommence flying to Los Angeles, Honolulu, London, Singapore, Tokyo, Fiji and Vancouver as well as the resumption of the trans Tasman bubble. On the other hand, destinations that still have low vaccination rates, coupled with high levels of infections, Will now be pushed out until April 2022. This includes destinations such as Bali, Jakarta, Manila And Joel Berg.
Importantly, levels of travel demand and, therefore, capacity levels will hinge on government decisions In accordance with the National Cabinet guidelines on alternative requirements to mandatory hotel isolation for fully vaccinated travelers. On the basis of these assumptions, the revised group international capacity of as a percentage of pre COVID flying We'll be 30% to 40% in quarter trade and 50% to 70% in quarter 4. And accordingly, it's an average of 40% to 55% in the second half. Similar to our approach on our domestic network, all capacity will be focused on cash generation And getting our people back to work by the end of financial year 'twenty 2. With cash burn until network restarted At limited to $3,000,000 per week and readiness costs covered by the government's IAS program, The business is focused on a cost effective approach to restarting the international flying.
Supporting our intentions today, we've also announced that 10 of our A380s with cabin upgrades We'll return to service by 2024. Of these aircraft, 5 will return earlier than anticipated In financial year 'twenty three, these aircraft will fly to Los Angeles and London via Singapore, where we expect there will be enough demand To support the aircraft, the return of the A380 means that the 1st class product will be returning to the skies And also means that more redemption seats will be available to our frequent flyers. They will also give us flexibility to grow The above pre COVID levels on the Trans Pacific. 2 of the A380s have been retired As they are surplus to the group's needs. While the prospect of international travel might feel a long way away, The current pace of vaccinations means we should have a lot more freedoms in coming months, and we Underlying demand to be strong, especially for people long and to see family and friends.
With Australia's only long haul premium and low International Airlines, we are well positioned to support that demand. Turning now to Freight on Slide 32. Qantas Freight is expected to continue to perform well. International to be negligible through the first half of twenty twenty two and into the second half of twenty twenty two until international capacity stabilize and grows. As a result, strong international freight demand is expected to continue with peak levels expected in the lead up to Christmas.
In addition, the freight business will continue to support the international freight assistance mechanism in the first half. Domestic demand for freight is also expected to remain strong due to e commerce trends and a growing customer base. To support this, fleet growth will continue with 2 additional A321 freighters being added in first half of 'twenty two. Given these trends and coupled with lower unit costs, freight profitability is expected to have structurally lifted From pre pandemic levels. Qantas Loyalty will continue to deliver strong cash flow contributions, And earnings are expected to rebound as travel demand recovers and redemption opportunities increase.
The business is positioned well with agreements with 3 major banks extended for multiple years. Demand for Qantas Point is expected to remain strong, and this gives us confidence that loyalty remains on target To achieve €500,000,000 to €600,000,000 underlying EBIT by financial year 'twenty four. Turning now to our outlook for financial year 'twenty two. The group existing undrawn liquidity facilities, proactive approach to securing funding and the ongoing strong contribution for Qantas Freight, Qantas Loyalty And cash positive flying ensures we have sufficient liquidity for a range of recovery scenarios. Through our improved network planning process and multi gauge fleet, we have the agility and flexibilities to scale capacity And shift aircraft to capture changing demand patterns.
Our clear brand positioning With leadership in both the premium and price sensitive markets and growing share in corporate and SME and leisure markets, We'll ensure that we capitalize on domestic demand. We are on a path to recovery, And the latest data on vaccine effectiveness, increased supply and pace of rollout globally and across Australia gives cause for optimism. This, along with our restructuring progress and the strong momentum we saw in quarter 4 'twenty one, Gives us confidence that we are in a in the final stages of recovery and that the overall recovery plan remains on track. In addition to the information provided in the previous outlook slide, our key assumptions for financial 'twenty two, Including the estimated impact of border closures on first half are outlined here on Slide 34. Now looking beyond financial year 'twenty two, we remain committed to our long term targets.
Our ambition is to deliver best in class domestic margins for both Qantas domestic and JetStar domestic businesses. We continue to believe the Australian domestic market can support these margins. When borders open, The international business will concentrate on where we have sustainable competitive advantage. This includes home market strength, Taking Australians to where they want to fly and leveraging our partnerships and deploying aircraft technology That allows us to efficiently fly longer distances. And for Qantas Loyalty, our growth ambition is still to achieve profits between $500,000,000 $600,000,000 And our progress on the recovery plan gives us increased confidence in the long term future of the business.
Thank you. Vanessa and I are now happy to answer your questions. To give everyone a fair go, We'd ask you to limit your questions to 1 per person, though I know with previous experience that may be a challenge. First question.
Your first question comes from Jacob Keqonis from Jadana, Australia. Please go ahead.
Hey, Jake.
Afternoon, Alan. Afternoon, Vanessa. Just on the lockdown timing in the domestic EBITDA impacts into the first half of twenty twenty two. Can you just let us know how much of that's coming from forward bookings versus Cancellations and just maybe some flavor on how much is 1 quarter versus 2nd quarter?
Jake, the EBITDA Impact that we've outlined of $1,400,000,000 is reflective of what we would have seen as being the actual flown revenue The first half, it doesn't include forward projections of revenue received in advance. We've calculated that based on where we felt that the particularly the domestic airlines were going to flying, which is above 100% capacity versus the prior year. So it's a reduction in revenue Off that flying to the new capacity that we've outlined in the outlook statement, obviously offset by the variable costs Of that lower activity plus also we've incorporated an offset against mitigations to minimize The impact of that reduced flying including stand downs. So that's the assessment that we have come up with in the first half. Clearly, If flying increases ahead of that, we'll have a better outcome or result in the first half.
Next question?
Thank you. Your next question comes from Matt Ryan from Berenjoli. Please go ahead.
Hey, Matt.
Hi, Alan. Hi, Vanessa. Just hoping you could give us some color on what you were seeing in that period before the most recent lockdown. So I guess we're talking about the Q4 period. And in particular, what you were saying with Your working capitaluria balances and as part of that, are you sort of anticipating any changes to the booking curve?
I guess people being or booking any differently than how they used to?
Yes. Great question. So a couple of answers to that. First of all, what we did see in quarter 4 was the businesses Forming incredibly well. We saw, Qantas and Jetstar deliver really strong results across quarter 4 and that's very evident that we were Increasing our capacity with an expectation that we were going to get very close to 100% capacity by the end Of June and the forward bookings across both Qantas and domestic was supporting that.
We also saw a very Strong EBITDA performance across the entire segments including above expectation in freight and also a very, very strong performance particularly in the flying businesses in terms of cost performance. So that strength in the quarter four performance and the improvement in net debt was partially Delivered by that very strong EBITDA performance. In terms of working capital benefits in quarter 4, we absolutely Did see a rebuild in domestic revenue received in advance. We were almost back to pre COVID booking curves, just before the Victorian lock Down at the beginning of June and before that just at the end of May, our domestic revenue received in advance This was almost back at pre COVID levels at 80%. So I think what it does show to us that when domestic borders are open, That travel demand is incredibly strong and also that the rebuild in those working capital, Particularly revenue received in advance gives us a lot of confidence that we'll see that when these lockdowns finish.
A great answer. And what I'd add to that is that what we're also seeing is the recovery of different segments of the market in the order that we Leisure was getting very rapidly back to pre COVID levels. So we're getting really strong bookings on Jetstar. And in May, We were back to 100% of pre COVID levels, and we saw and had confidence if the borders had stayed open, we'd get to that 120% that we were expecting. And pleasingly, the corporate market and the SME market was coming back.
SME, somewhere between corporate At leisure, but we were seeing growth in the business market in the region of that 70% to 80% that we talked about. So what's actually very pleasing is that we think all segments of the market, as confidence comes in and borders stays open, We'll recover to the levels that we were expecting and the potential to get beyond pre COVID levels domestically is very real. Next question.
Thank you. Your next question comes from Justin Barrett from CLSA. Please go ahead.
Hi, Justin.
Good morning, team. Thanks for your time today. I just wanted to ask about where booking curves sort of sit currently, just in the context of Vaccination rates ramping up with the potential for the more domestic borders to be sort of more open from 2022. Are you seeing some Resilience or strength in your longer term bookings at the moment?
Well, I might get Andrew, David, give you opportunity for the guys to Speak, Andrew, David and Garrett, just to talk about what we're seeing on domestic bookings. As you could expect, with the borders closed, they're not very good at the moment, which is not a surprise. Andrew and Garrett, do you want to go? Andrew first.
Yes, sure. I've got to echo the point you just made. With all the borders we've got closed domestically and then internationally, no, we're not seeing much In the way of long term bookings at the moment, but we do expect that to change and we expect to see Performance and domestic in line with the very encouraging growth we saw in quarter 4 of FY 2021. And just adding to that, I think the other factor that gave passengers customers confidence to book was our FLY Flex and our Well programs that is building that forward booking. So no at this stage, no there's not a lot in But we do expect it to change very, very quickly.
Garrett?
Yes, broadly the same here where borders Just there's very little or no bookings understandably. People do need a level of certainty to book. Where borders are open still, there are We've got orders open Queensland, Tasmania, South Australia Borders are open or restrictions are about to lift and bookings remain strong for both routes. So At or about 2019 level. So it shows the resilience of the market as soon as restrictions are lifted, People want to go and their booking strong and the revenue is rolling in, but where restrictions are in place, Understandably, bookings are very, very, very low.
Next question.
Thank Your next question comes from Paul Butler from Credit Suisse. Please go ahead.
Hi, Paul.
Hi, there. Thanks for taking my question. Look, just given the rhetoric we're hearing from State governments in Queensland and WA and sort of elsewhere, There seems to be some reluctance to commit to the national plan of reopening once Vaccinations get to 70% to 80%. Just wondering in the event that New South Wales State borders remain closed and it's the only state that say open to international Quarantine free international travel. What does that mean for the viability of Sort of cash positive international flying?
So I think the first thing to be said is that The National Cabinet have agreed to the framework. And I think the debate you're hearing the last few days were over what the Doddy report actually Said about whether it would make a difference with the cases starting in the 100s compared to in the 50s. And I think They've responded by saying it doesn't make any difference and the framework for the National Cabinet still holds. So I think the federal government, the Prime Minister, Dan Sir, Dan Tiernan today made very strong statements that they believe that, that will hold, that the assumptions that we're assuming are going to be valid. So we still see that as the prime and the key case of what will happen.
And of course, what we always maintain is the agility To be able to flex up and down if things were not to come through that way. I do believe the outpouring All the emotions from our advertising campaign this week, I think, shows that the tide has turned on this and is turning on this, That people want to see their families for Christmas. People believe that when they hit the 80% vaccination levels, what else are we waiting to see? What else do we need in order to get our freedoms back, in order to allow us to travel again and in order to allow us to catch up again? So I think there'll be a massive ground Well, against these premiers, against the governments that would resist that, and so there should be because I don't think there's another alternative plan that anybody else On the table.
So our base position is that we will get there with these borders opening up. And I will say That the bulk of our international operation is out of New South Wales pre COVID. That's where most of the demand, most of the traffic is. When you look at the network that we're proposing from the middle of December, and it involves a daily Sydney, L. A, Sydney, Honolulu's Forward a week, Sydney to Japan, daily from Sydney to London, either via Singapore or via Darwin.
So the massive part of the network is New South Wales. And if New South Wales opens up, we'll get a massive Influx of Ria. And that's where the bulk of our network has always been because that's where the demand is. I know people in the Past have thought we were Sydney centric. It's because of demand and the focus has always been of the corporate market has been on Sydney, and that's what we expect and the buildup Of the network post this.
Next question?
Your next question comes from Anthony Longo from JPMorgan. Please go ahead.
Hi, Anthony. Good day, Alan. Good day, Vanessa. Just had a quick question on the financial framework and confirmation around that guidance. So I noticed there's expressions of interest So for the sale of land, is the attainment of that guidance for your net debt, Is that contingent upon that sale of land ultimately happening?
No. Or is that largely based on your recovery profile?
No, it's not based on selling the land. If we get a good price for the land, because it's not strategic, we will sell. But simply if we don't get a Price we won't sell and our forecast is not based on that. It is based on the recovery plan and the outlook that we've presented and it will include the Build of revenue received in advance across both domestic and international.
That's great. And sorry, can I just follow-up in terms of So I'll take note of your capacity growth profiles across domestic and international? But just a reminder as to what maybe some of those upfront costs Could be to reactivate the network please.
Yes. So for Qantas International, I think it's really important to be clear that a lot of The restart costs, so maintenance and training for cabin crew and also tech crew, that is covered by The government's international aviation assistance program. So if we were to see any of those dates slip, That cost is covered by the government. So I think that that's actually really important. So our cost effectiveness in International is going to be very, very small.
Any investments that we would be making attached to international, for example, the IR to travel pass Is a part of our long term strategic, I suppose product offering for international. So no sunk Costs will be incurred.
And maybe just to emphasize that as well. I mean, the government we've been talking to the government about these plans For some time and continue to do, and they're very supportive. They think our logic is right. There's still a lot of decisions to be made before international could open up. But the IAS program was designed to get Qantas, its people, its aircraft ready because we do need to start international as As soon as we can once those decisions have been made, and the government's happy to continue that support package.
I will also say you will see in our statistics That we are saying that in the first half of this financial year, we'll be operating 15% of our pre COVID international schedule. That is under the IFAM and repatriation and charter flight bases. That gets a lot of our pilots current, gets a lot of our aircraft maintained. In fact, in the next 90 days, we're doing a repatriation or charter flight every day to a range of locations around the world. So that is also a big part of us getting ready for this, and the cost that Vanessa outlined are very minimal to get our international business up and ready For the end of the year.
Next question?
Your next question comes from Anthony Mulder from Jefferies.
If I could stay on international, obviously, the recovery of international is, I think, Something that we're all hoping for in the time frame that you've outlined. Just want to understand how you made the decision or the thinking behind the decision to bring back the 380s Certainly earlier than we were expecting. Is that a function of demand, which would be the positive? And how do you think about the pricing of those aircraft And also what that means for the A350s, appreciate the Project Sunrise is still a key part for international, but Given that balance sheet repair is going to be the focus, are we pushing Sunrise out several more years from here?
Yes. I might get Andrew David to answer the A380 part, and I can answer, Andrew, the Sunrise part. Are you okay to start with the A380?
Yes, sure. Hi, Anthony. So look, 380, yes, absolutely driven by demand in those 2 key markets So, U. S, U. K.
So first two coming back middle of next year for the Sydney and Los Angeles operation. We believe that demand is there for the premium product bringing 1st class back on to that market, 74% of our demand internationally is leisure driven and 58% of it In the premium cabin, about 63 1st class, about 56 business class, and that's excluding Redemptions and upgrades and we'll be I think there'll be a high demand for redemption. So we're confident on that Sydney, Los Angeles sector. There will be demand for the 380. Similarly, for London, we'll be bringing back 3 more November next year to operate from Sydney through Singapore and up to London and exactly the same drivers, a strong demand for premium product Into that, Martin, back to Australia.
The other 5, we can flex either way depending on demand levels, Bringing them all back by early 2024. The reason we're only bringing 10 back and not 12 is simply because we're using The opportunity to get the reconfigurations done, get the 12 year checks done and the landing year changes done. And it means when we bring the 10 back, we can do the same level of flying we were previously doing with 12, hence the reason for only needing 10 aircraft, not Well, back to you, Adam.
Thanks, Andrew. I might get Steph to come in and talk a little bit about the research we've done on the Propensity to travel internationally, Steph, because there's some amazingly encouraging numbers once the borders open up. Steph?
Yes, sure. Thanks, Alan. So we've obviously been researching our customers throughout the pandemic on their desire to Travel and you were doing that monthly and in the last couple of months, particularly for international, we've seen the highest demand levels we've ever seen. When you compare that pre pandemic levels of people that are likely to travel in the next 12 months, we're seeing triple the amount of people looking to travel internationally in the next 12 months, which is extremely encouraging, particularly led by VFR and particularly led by those core The U. S.
And U. K, which gives us confidence to what Andrew is saying. Back to you, Alan.
Thanks, Steph. And on the Project Sunrise, We've said that we wouldn't revisit that until we can have certainty about the international borders opening up. So that looks like at the end of this year, early next And we'll be certainly talking to Airbus, our pilots and having a look at the business case again in the pros at The post COVID world. I will say that because time has passed, this is pushed back anyway because availability of the 350,000,000 And the earliest that possibly could start is 'twenty four, 'twenty five, which we should be well on the way to repairing our balance sheet and should be Significantly back given our targets that we set for ourselves in 'twenty four, which we have confidence in to having a strong balance sheet by then. Next question.
Thank you. Your next question comes from Andre From UBS, please go ahead.
Andre?
Hi, there. Just curious about the shape of The recovery plan. So, I mean, it looks like the costs associated with implementing The restructuring slowed down quite a bit in the second half. So should we assume that a lot of the work is done, in particular, At the headcount part of it and we're sort of waiting for the benefits to flow through Including sort of the comment of at least $1,000,000,000 by FY '23, like what work is left to be done in implementing the restructure?
Yes, I think a couple of comments on that is that We feel really confident on achieving the $1,000,000,000 on target by financial year 'twenty three and we're ahead And tracking ahead of target this year and also we believe we'll be ahead of target next financial year. With our recovery plan were through redundancies of which the vast majority have already been paid Around $980,000,000 last financial year. So in terms of those cash flows, they are now Behind us and really it is about just betting in the initiatives that we've got and seeing flying come back.
Thanks Vanessa. Next question.
Thank you. Your next question comes from Owen Birrell from RBC. Please go ahead.
Hello.
Hi, Alan. A quick question for you or maybe better for Andrew or Gareth. I'm just wondering if you can make comment around what you're seeing in terms of the rationality of the competitive landscape, Particularly domestically, I mean, obviously, we had a period of time where a lot of people were flying again. I'm just wanting to get some comment So how the competitors have been performing or sort of acting in that environment?
Yes, good question. I guess we'll get Andrew and Gareth. Andrew first, then Gareth Again, Andrew?
So what we are seeing from Virgin post administration As they seem to be much more focused on the middle ground with REX and both competing for that space, The benefits we obviously have as a Qantas Group is we have Qantas as a premium product at one end of the market and Jetstar is the largest And low cost carrier at the other end of the market. We are seeing Some competitive pricing out there, but what we've also seen is that the Qantas average fares are holding against pre COVID levels. Our loads were down, but that's to be expected because we were chasing cash. We were getting aircraft in the air. As Alan said, we wanted to get our people back flying.
So we would expect those load factors to build over time. As commented on before, encouragingly The most encouraging thing out of the quarter four stats was the recovery for Qantas in the business purpose travel back to levels of 75% Of pre COVID. And the other thing that, of course, gives the Qantas business a lot of confidence is the cost Reduction program that we've driven through and that's why we are still saying we will hit our FY 'twenty four target of an 18% Operating margin. Jarrod?
Yes, look, I think you've pretty much covered it there. Clearly, neither REX nor Virgin are low cost carriers. They stated as such, they both got business class cabins on their aircraft, they both got lounges. They are both in the middle of the market and that's probably where the competitive battle is going to take place. Longer term for Jetstar, We have a significant cost advantage over both of those carriers and a lot of work that we've done as part of the transformation and the growth that will come in As the market rebounds will help us cement that position.
Obviously, there's going to be very Competitive fares out there from all carriers as the market rebounds, that's understandable. But again, as Andrew said, in that Q4, once We saw a lot of headlines about $39 fares from REX and the like and we were absolutely being very competitive against them. We So average fare very overall still very much in line with where it was in pre COVID 2019.
I think that's good. I might add to that. I think what we're also seeing is that I think Virgin are a lot smaller than they were coming into this. So we are seeing capacity actually, even with the growth that we're being behind where they were pre COVID levels, which indicates that there will be a continued discipline, I think, in the domestic market. And we know Virgin are being run by private equity company, very different from the shareholders that they have previously, Where they will have to make a return out of this, same way Qantas has to make a return out of this.
So I think that's It's good for the medium- to long term of where the domestic market's going to position itself. And then REX and Virgin, as Gareth and Andrew said, Are competing in this middle of the market space. We're seeing very aggressive activity between the 2 of them. And what we can see is that Qantas And Jetstar are out of this battle. They're not being impacted by that battle.
And I'm sure that will continue. But Given Jetstar has such, as Gerhard mentioned, such a lower cost base and Qantas has reduced so much of its cost base but has such a Premium product, and the market research is showing that already, we've won 34 corporate accounts. It will be all about margin. The margin in Qantas Domestic and the margin in Jetstar Domestic will be a lot superior, we believe, than the 2 competitors, Which will allow us to maintain the strategic position of 70% market share going forward. And we have confidence out of domestic market, We'll come out of it stronger than we went into COVID with that performance.
And I think we've got time for one last question. Is one last question? Yes. Two last questions. Okay.
2nd last question. Next.
Thank you. Your next question comes from Cameron Macdonald from E&P. Please go
ahead.
Hi, Cameron. Hi, Alan.
Quick question for Vanessa. Just Yes, you've outlined the cash burn of $3,000,000 for international as you go into the restart. What with the subdued domestic operations at the moment, what is Current group cash burn position. And secondly, you mentioned the IATA passport. Are you going Can you and will you mandate vaccinations for passengers as well as mandating it for the staff that you've already done?
I'll answer the first question and perhaps pass to Alan or Steph for the second question. In terms of the cash performance and how we've managed the business over the last 12 months, we've had a very intense focus on cash. Both halves in FY 'twenty one were positive at the underlying cash position and we expect that that's going to continue Into the first half for next financial year. It is also I think really important To emphasize that we are in the final phase of recovery. We've given you an update in terms of capital and how that is skewed across both halves.
But I think the most important thing is that we've got sufficient liquidity to manage through a range of scenarios that we might face in the first Half both with our ending cash position, but also our undrawn cash facilities of $1,600,000,000 and also Unencumbered assets of 2.5. So we feel very confident that we've got a sufficient liquidity to manage through a variety of recovery scenarios and that we were also really confident that when our board is open that demand will return as we saw in quarter 4.
Maybe a little bit. I'll ask Steph to come in in a second, but a little bit on requirements internationally. It's gradually happening government by government. I think Joe Biden has said to get into the United States, there'll be a requirement for people to be vaccinated. I think European countries are already there.
People are Having to show their vaccination status even to get into sporting stadiums around the globe. So this is happening. We've always said that as our conditions of carriage, we will make them once we start international back up and running. We'll make them a condition of carriage that people are Today, on our aircraft internationally, that we think is very important because 90 percent of our customers in near about So it's the protection that is most important for them and it will allow them and give them confidence of traveling internationally again. Given that we have some of the longest flights in the world, we think it's a necessary requirement to maintain the safety of our passengers And our staff onboard the aircraft, and it'd be something our customers will want to see.
And I think at some stage, I think the Australian is talking about having 2 different tiers. If you're vaccinated, you may have no restrictions or very limited restrictions. If you're unvaccinated, You're in hotel quarantine. And at some stage, I'm assuming hotel quarantine will end as well, so there won't be too much demand for unvaccinated travelers. Steph, do you want to talk about the travel pass and how we're getting ready for it?
And anything else you want to add to that?
Yes, sure. Thanks, Salveen. So we're well underway as we announced. We've worked with IATA to build out the Travel Pass product, and that's really important both for Australians Going overseas, but also for customers ultimately coming to Australia from inbound. And it's about being ready to Show you proof of vaccination and the right vaccination date and type, but also testing because what we can see is there might be different requirements Depending on which country people are traveling to and what we want to do is get quite some depth to our customers completely informed and ready and Have a seamless experience so that when they're traveling that we can facilitate that and that helps to grow our brand preference as well.
So we will be ready In line with the international restart plans that we outlined today. Thanks, Alan.
Thanks, Steph. And the last question.
Thank you. Your last question comes from Sam Dao from Citibank. Please go ahead.
Hey, guys. Thanks for taking my question. Look, I just quickly wanted to touch on the net debt guidance. I imagine historical lead times
Well, booking behavior is different. So would it be fair to say with people booking shorter lead times, most of the heavy lifting,
I guess in the reduction comes from EBITDA or is there an inbuilt assumption that lead times kind of return to normal?
Yes, look, I think that a couple of points, if you look towards what was seen in the first half, The underlying operating cash that we generated in the first half was $1,300,000,000 $300,000,000 of that came through of the segments and $1,000,000,000 was through working capital movements. So we feel really confident That in the recovery phase as we have been saying now for many, many months that the working capital benefits will flow back. We saw domestically, that when we were approaching May that booking curves were approaching pre COVID levels, across both Qantas And also across Jetstar. And my view is that when international opens up the pent up demand That will be there for people to visit family and friends and go on that deserved holiday. I think that you will see very similar booking curves as what we've seen in the past as well.
Well, thank you.
Yes. Thanks for that.
Thanks very much, everybody. And that's all the questions. We've answered everything. So kind of thank you for your questions. Thank you for