Thanks very much, Amanda, and welcome everybody for joining us here today. We're in Mascot, and I'm joined by the Qantas Group Chief Financial Officer, Vanessa Hudson, and the Head of Investor Relations, Frances . Now, hopefully, you've had a chance to read our statements launched with the ASX this morning. I'd like to, first of all, talk briefly about the trading conditions we're seeing and what that means for our financial performance. Then, Vanessa and I are happy to take your questions. Since we last updated the market at our AGM in October, there's been a lot of positive developments on domestic borders and great news on vaccines. The easing of restrictions is welcome, but the domestic recovery has been slower than we had planned because of the slower-than-expected border opening. We are now expecting the group underlying EBITDA for the first half to be close to break-even.
Our domestic capacity has largely been limited to interstate travel, reaching about 20% of pre-COVID levels in the first quarter. Now, with Australia basically one country again, we expect our domestic capacity to be about 70% for December and probably close to 80% from January onward. In terms of demand, we have seen significant upticks in leisure demand with each border opening. Business customers in the resource sector have continued to travel throughout the pandemic, particularly within Western Australia and Queensland. And we are seeing our SME customers starting to travel again, with some significant volumes already appearing on the Melbourne-Sydney route. Qantas Loyalty, with its diversified earnings streams, has delivered a strong cash contribution to the group with record levels of MPN. And Qantas Freight continues to perform very well, driven by increased freight demand from its surging e-commerce trends and constrained international belly space capacity.
But unfortunately, our international business remains essentially grounded, apart from some repatriation flights that we're doing with the government. We expect no material change to international travel during financial year 2021, that's still the end of June 2021, without a broad-scale rollout of vaccines. Our intense focus on managing costs and cash flows has maintained the group's strong liquidity position. As of the 30th of November, our total liquidity was AUD 3.6 billion, including AUD 2.6 billion of cash and AUD 1 billion of revolvers, which remains undrawn. Net debt was AUD 5.9 billion, and we have continued with our proactive approach to funding, securing about AUD 750 million additional debt. This includes the early refinancing of our June 2021 bond maturity announced a few weeks ago.
And we are currently in the market to top up our revolving credit facilities to provide additional short-term liquidity if needed, and we expect to achieve around AUD 500 million extra taking our revolver to AUD 1.5 billion. We have maintained our investment-grade credit rating, one of the few airlines to do so, and we continue to have no financial covenants on any of our debt. Turning now to cash flows. The substantial working capital outflows associated with supplier payables and refunds are now behind us. And we have paid approximately 50% of the redundancy payments by the end of December. Provided the borders remain open, we now expect to be net free cash flow positive in the second half. This excludes AUD 450 million of redundancies that are to be paid in January and February. And we believe by the end of February, we'll have all of the redundancies completed.
This is a great outcome and will allow the process of balance sheet repair to begin. As part of ensuring our future, we've had to make some really tough decisions to fundamentally restructure our cost base. We are making good progress on the recovery program. This week, we made the decision to outsource the Qantas Ground Handling operation, saving AUD 100 million per year. And we have reached agreement to a new commission structure with our agents, expected to save Qantas tens of millions a year. And we expect to have more than 5,000 roles exit the business by the end of December. We are on track to deliver AUD 600 million of structural cost benefits in financial year 2021 and at least AUD 1 billion in annual cost reductions for financial year 2023 onward. We'll share more details on this at our half-year results announcement in February.
As we look ahead, our capacity is expected to climb to around 80% for the third quarter. Domestic intake trends have also been improving week after week, and revenue received in advance is steadily rebuilding with a return to near pre-COVID booking curve in our domestic market. We anticipate a recovery in demand from non-resource customers from February, aligned with the traditional return of business travel, and we've now seen 25 corporate customers that have shifted to Qantas, and that should help mitigate any medium-term decline in business travel demand, and of those 25, we saw in the last few months a significant proportion of them come across to Qantas as the competitive offering has become clearer, and we are continuing to look for opportunities to respond to the changing demand pattern.
So far, we've added 11 new routes, the most new routes that Qantas has added in this period of time in its 100 years' history, by Canberra to the Gold Coast, Perth to Hobart, and Brisbane to Hobart, and we have a lot of flexibility to redeploy aircraft to maintain our domestic market share at current levels, which is above 70%, and we believe that will be maintainable going forward. While this is the first step of our recovery journey, the outlook is a lot more positive than it was six months ago. It's great to see more of our aircraft back in the air, along with more of our people back at work, and we're optimistic it will keep getting better from here so we can focus on balance sheet repair. Vanessa and I are now happy to answer your questions. Back to you, Amanda.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up your handset to ask your question. Your first question comes from Matt Ryan from UBS. Please go ahead.
Hey, Matt.
Hi, Alan. Just had a question on demand. 80% for the March quarter is obviously a big improvement. Does that imply that leisure is back to 100% of pre-COVID levels? And if so, what are you seeing from the corporate market at this stage leading into that quarter?
Yeah, Matt. It's always we're seeing when we open up for sales activity on the leisure side, massive uptakes. When Queensland opened up within 72 hours, we'd sold over 200,000 tickets on it. When Jetstar was promoting Queensland from February onwards, they sold 120,000 seats, which was 20 times what we would normally have in a sale like that. So we're expecting leisure traffic and VFR traffic to get back to pre-COVID levels very rapidly. That's what seems to be happening. On the business market, as we said in those opening remarks, the resource sector and the government sector have been pretty good. Resource to fly- in, fly- out has been very good even before the borders opened up. We've been adding aircraft and capacity into this. We're now up to 11 A320s in Network Aviation in WA to meet the demand for that.
And we are seeing even now, just before Christmas, an uplift in corporate activity on markets like the Golden Triangle, which was non-existent. And that's starting to run at 30%-40%. SME is around 40% at the moment of where it was pre-COVID. And this is a time when typically the business market's a bit softer coming up to Christmas, and it does shut down. Corporate Australia does shut down through December and into January. And so we're getting prepared for that to be even better post-February when the market comes back. That's why before Christmas, we're going to open up over 30, over 35 lounges. That's why we came out with the announcements that people can maintain their status by taking one trip in the next year, essentially. And we think that will encourage that to be maintained.
And so you can see that we're being pretty confident that we're going to see that market recovering quite rapidly. And one last data piece. When we've done research of our corporate accounts and talking to them, 77% of them are saying that they will start traveling back within the first six months of the borders opening. So we're seeing strong indications from the research as well that they're likely to come back.
Thank you. Your next question comes from Richard Jones from JP Morgan. Please go ahead.
Hey, Richard.
Oh, good morning, Alan. Just wondering if you can let us know what the payments for redundancies will be in December and, I guess, as a result, where net debt's likely to end at the end of the period?
So we've actually got AUD 450 million redundancy payments that have occurred in the first half. I think we've got around AUD 90 million or 130 to go between now and the end of December. But it's not only redundancies that will be driving our movement in cash flow in December. We're also moving to pay significant refunds in the first half as well, up to about AUD 70 million with as well a significant amount coming in December. So we're anticipating that with the net debt now of AUD 590 and based on the inflows that we're seeing that's coming in, that net debt will move up but not significantly from where it is today.
Thank you.
And as Vanessa and we said in the opening remarks, we have some significant redundancies in January and February, particularly with the news on the Ground Handling, and that's another 450. But outside of that, we expect to be cash flow positive and repairing the balance sheet. And there is a significant improvement in revenue in advance that's happening at the moment as revenue's coming in. So we're seeing that recovering from some of the lows that we had during the year, which will help offset some of the refunds that are being planned to go out by the end of the year. Next question.
Thank you. Your next question comes from James Wilson from Jarden. Please go ahead.
Hi guys. It's Jakob Cakarnis from Jarden. I just wanted to ask about the activity-linked savings that you've got for FY 2021. You've mentioned that the assumptions on those activity-linked savings, which are fuel and operating costs, rely on 70% capacity. It seems as though now we'll probably move beyond those. Can you comment about the fuel outlook and then some of those activity-based costs, please?
So the fuel outlook is we're seeing some very stable fuel prices at the moment in terms of at least in particular the second half. We've actually got a really, I think, very stable as well hedging position for the second half. We've got no risk of committed hedging above our current capacity outlook. So from a fuel perspective, we believe that there are two kind of drivers on fuel. There's some upward pressure on fuel from demand or, I suppose, perception of vaccine driving demand in the future, but there's also a significant amount of supply in the pipeline. So we've got, I think, two offsetting dimensions there. But we're very well positioned if fuel price increases or decreases from that perspective.
So in terms of the second half activity, though, Jakob , in terms of where we were in June and our three-year plan, we are still tracking behind where we thought we'd be in the second half and at the total on annual basis. So we're still driving hard, as Alan said, to find ongoing right-sizing benefits to ensure that we are matching our cost with our revenue as we progress into the second half.
Thank you. Thank you. Once again, if you would like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Paul Butler from Credit Suisse. Please go ahead.
Hey, Paul.
Hi, good morning. I just wanted to ask about your expectation of maintaining 70% domestic share. In the last few days, I think Rex has started selling tickets on the Sydney-Melbourne route for flights that, on a pre-COVID basis, excluding Tiger, look like they're around 10% or 11% of the capacity on that route. I'm just wondering over what period of time you expect to maintain 70% share of the domestic market and whether Rex's aspirations factor into that.
Yeah, Paul, well, first of all, I think it's very clear that Virgin coming out of administration is a lot smaller airline than the one that's going into it. They've returned the A330s, the ATRs. They've got a lot less 737s. Actually, the 737s Rex are taking over ex-Virgin aircraft. So they're going to come out a lot smaller, and we are seeing in the market, like the corporate market, 25 corporate accounts coming to Qantas. We've seen with our status match, we've seen thousands of customers take up the status match on it, so there is a move and preference towards Qantas and Jetstar through these changes on it, and we do believe that the strategic advantage that Qantas is having, which is a bigger network with more frequency, particularly from corporate customers, is a big advantage, and it is our intention to maintain those strategic advantage.
And if that results in a market share around these levels, we're very comfortable about that. And we think probably naturally it does. I've mentioned the 11 new routes, for example, that we've started. And we're putting capacity on new markets that there wasn't really demand before this on. That seems to be comfortably coming to Qantas. And new routes like Perth to Hobart, the Canberra to Hobart, Canberra to Cairns, they're all going really, really well. We didn't operate them before. And we're going to be trying more of them, new ones going forward. And yeah, Rex is coming into market, but there's no rule that says we just need to concede market shares to them and give our market away to them. And we certainly have not intended to do that. It's got to be very competitive. It's great for customers out there.
It's great for the traveling public. And we do, I will say, Paul, we've always had the view, and we've made this clear for some time, that while we have so many aircraft on the ground, our intent is to get our people back to work. It's our intent to get those aircraft back in the air and to curb the cash costs associated with our overhead. And so we can make a cash contribution out of flying aircraft. We're going to do that. That's been clear for some months. And we will be looking at every network opportunity in that line. Virgin can get rid of aircraft. Rex don't have to take as many aircraft as being proposed out there. That's a decision for them. But we're stuck with the A320 aircraft we've had. We didn't go into administration.
And I think we're very keen to curb as much of the overhead and the costs associated with them as we possibly can. And if there is demand to fly them, and there seems to be, and people want to fly with Qantas, we're going to get them back in the air. That's good for our people. It's good for the traveling public. That's good for competition. Next question.
Thank you. We would like to invite anyone that has previously asked questions. If you have a further question, please register a question again. We have time. Your next question comes from Owen Birrell from GS. Please go ahead.
Hello.
Hi guys. Hi guys. Just a couple of questions for me. Firstly, on the recovery dynamic, you've upgraded your capacity outlook from the 50%-60%. Obviously, demand is a lot stronger. I'm wondering if you can give us a sense of what the RASK picture looks like within that early demand and also what the load factors you're looking at, and the second question is just around the hedging program and whether that's kicked back in for the next year and how should we think about fuel hedging going forward.
Yeah, look, I think that one of the really pleasing things that we've seen in the last couple of months, at least, is that our yield performance in particular has been relatively strong. Qantas, in particular recently, is tracking in line with pre-COVID level on a yield basis and also Jetstar very similarly, albeit that we are running a lot of tactical activity to stimulate demand into the forward months. So I think that coupled with, as what Alan said, that we're seeing as well, booking curves for both Jetstar and domestic now approaching a profile that was very similar to pre-COVID. We feel really confident that not only is demand there, but also price is relatively inelastic in the market at the moment as people are very keen to travel for holidays and reconnecting with family, friends, and business contacts.
In terms of seat factors as well, we're seeing strong seat factors across the network for both Qantas and Jetstar. Some of them will vary. We're still operating the government-subsidized routes where they're not commercially viable in their own right, and so on some of those networks, we're seeing lower than desired seat factors, but on our main trunks, we're seeing that build really well and really quickly, and as Alan was saying, some of the new routes that we've launched, we're seeing the load factors build on some of those routes much faster than what we would have traditionally seen, so I think it all just kind of points to the positivity of the recovery and speed of the recovery that we're seeing.
On fuel hedging, as I said, we've got a very stable position in half one where our committed hedging position is in line with the capacity that we're seeing emerge. Plus, also, we've got the ability to participate at higher levels of capacity as well, and particularly, we feel protected if fuel price moves one way or the other. Beyond the second half, we are starting to look to rebuild our hedge wedge, and we've spoken in the past around the principles that we have for hedging, is that it is a moving 24-month average with a declining wedge as the further you get out. We are starting to reactivate the more normal hedging activity that we would do, bearing in mind that we are contemplating, obviously, the restart of international as vaccines rolled out in the first half of 2021.
There's still a cautious layering of hedging, but we are starting to do that to move the hedge profile back and ensure that we've got good coverage in those further months beyond June.
And I think when you see some of the seat factors reported Jetstar for the last few weeks as being operating and load factors over 80%, then going forward, we expect that to be even better as these borders have opened up. Qantas is lower than that because there's a large element of Qantas' network that's under this MVN, which actually has load factors in some cases at 30%. It's been deliberately supported at that MVN network by the government before the borders opened unless routes fall into it as the borders opened. And seat factors, once they open, seat factors get back to normal levels pretty rapidly. So don't be surprised if we see Qantas seat factors up till now being in the 60s and Jetstar's in the 80s, but we're expecting them all to get back to normal levels as we go forward.
I will say that even at those seat factors, the vast majority, like 99% of our flights, are making cash contributions, and so we can operate, and that's the reason why we're trying to get as many aircraft back in the air. We can operate when making significant cash contributions with lower seat factors than we're getting at the moment, and we're very comfortable that demand is rebounding to get back to more normal levels over Christmas and into the new year. One last question.
Thank you. Your next question is a follow-up question from James Wilson from Jarden. Please go ahead.
Sorry, guys. Jakob Cakarnis again here. As the balance sheet starts to repair, can you just give us a sense of potentially the path back for capital management and whether the company would look to restore dividends or focus on buying back shares? It seems as though, obviously, in the past, as you've recovered back to paying cash tax, the priority has been on repurchasing shares until such time that then you can frank the dividend. Can you just give us a sense of what that might look like as we move forward?
Jakob , I think it's a good question to ask when our focus is just making sure we repair our balance sheet, we get out of this, and we get our operation domestically and internationally back up. And then when we see, particularly international borders opening up at the rollout of the vaccine, I think at that stage we'll communicate about what our future plans are for opportunities that are out there because there will be some, and there's a lot of them at the moment, for what we think capital management looks like as well. We do believe that Qantas will come out of this relatively in a good position compared to other airlines. And we'll also want to make sure that we solidify that strength, solidify our competitive position. But at the appropriate time, we'll be talking about capital management, but we're some time away from that.
Thank you. There are no further questions at this time. I will now hand back to Alan for closing remarks.
Well, thank you very much, Amanda. And thanks, everybody, for joining us. Can I wish everybody a great Christmas and Holiday Season and New Year? I hope we'll see many of you on our aircraft. There's still plenty of good deals and airfares out there to plenty of places around the country. And we look forward to talking to you at our half-year results in February, where we should be able to hopefully do it in person now that the restrictions are easing up. Thank you, everybody, and have a great Christmas and new year.