Sorry? Please go ahead.
Thanks, Izzy. Welcome, everybody. We're here in Mascot with the entire GMC team. So good morning, and thank you for joining us today for your webcast for our full-year 2020 results briefing. We have a very different event this year with no guests in the auditorium as we manage the social distance requirements in the post-COVID-19 era. Also with me is Vanessa Hudson, the Group CFO, who will present the results with me, and then we'll take questions. Before I get started, I would like to introduce some of the members of the senior executive team that join us here today.
We have Andrew Parker, who's head of our government affairs, Olivia Wirth, who's the CEO of Qantas Loyalty, John Gissing, who runs our regional operations and our safety and a lot of our associated businesses, Gareth Evans, who's the CEO of Jetstar, we have Andrew David, who's the CEO of Qantas Domestic, Tino La Spina, who's the CEO of Qantas International, Steph Tully, who's the Chief Customer Officer, Andrew Finch, who's the legal counsel and head of the office of the CEO, and Rob Marcolina, who runs multiple things: HR, IT, strategy, and leading the transformation program. And we will be asking each of the members to help answer the questions when we get to your questions. So far, 2020, our 100th year, has been one of the most challenging years in our history.
While there have been many difficult moments for all of us here at Qantas, there have also been highlights that demonstrate the true purpose of the national carrier. We take the Spirit of Australia further. From carrying plane loads of firefighters and supplies to the bushfire zones over the summer, to evacuating Australians from Wuhan and Tokyo in the early days of the pandemic, and the many repatriation flights that occurred post that. We've been keeping vital freight and aviation transport links open. That's the role of the national carrier, and how our people have responded makes us all extremely proud. It is that professionalism, commitment to our customers, and resilience that will ensure our success. Turning to our results and looking at our profitability first, the 2020 financial year has been a tale of two halves.
After delivering another strong result in the first half, the group entered the second half in a strong financial position. In the second half, to manage the health consequences of COVID-19, the government imposed travel restrictions and border closures. As a result, revenue fell by nearly AUD 4 billion, as the passenger fleets of both Qantas and Jetstar were almost completely grounded in the fourth quarter. We quickly shifted our focus to our cash flow and liquidity settings. As revenue fell, we reduced net operating expenses by 75%, which is a good reflection of the reduction in cash costs. This was an incredible effort right across the entire group. The record performance from Qantas Freight and the strong results from Qantas Loyalty were both highlights of the results. They are both examples of the value of a diversified portfolio.
Despite these strong performances, the grounding of the passenger fleet meant that the second half result was an underlying loss before tax of AUD647 million. Combined with the strong first half results, the full year was a small underlying profit before tax of AUD 124 million. The statutory result was a AUD 2.7 billion loss, including AUD 2.8 billion of one-off charges. The financial framework continues to guide our decision-making. We acted quickly to boost liquidity, raising AUD 1.75 billion of debt at competitive interest rates with long tenure and with no financial covenants, and as we saw the green shoots of the recovery in demand emerge in May, our planning for return to flying began. In late June, we announced our three-year recovery plan. We recapitalized the business to fund the recovery plan and boost our liquidity.
Our restructuring and rightsizing have commenced, with about 4,000 of the 6,000 roles to be removed by the end of September, and we have made good early progress restarting part of the network, maintaining flexibility to respond to evolving demand and ongoing border closures. In the last five years, we have built a strong foundation for the business to withstand a range of external shocks. We achieved the trifecta of strong customer advocacy, strong employee engagement, and record levels of profitability, and through the strong operating cash flows and disciplined allocation of the financial framework, we were able to strengthen the balance sheet. Net debt was low, we had strong liquidity, and a large unencumbered asset base, and the significant surplus generated during the period also allowed the group to return approximately AUD 4.3 billion to shareholders.
During the second half, as the travel restrictions were applied, we acted swiftly to safely hibernate the business, cut costs, and preserve liquidity. We raised more debt, canceled the proposed shareholder distributions, we cut CapEx, we negotiated concessions with suppliers, we grounded the aircraft, and regrettably, we had to stand down about 25,000 employees. These proactive steps protected our investment-grade credit rating, one of the few airlines to do so through this period, and for our customers, we introduced measures like Fly Well and more flexible travel credit conditions. We also extended our loyalty tier status for 12 months as Fly Well ceased, and we raised equity to fund our recovery plan. Because of the swift actions taken to date, we are entering the 2021 financial year in a strong position with strong liquidity. We are well positioned to launch our three-year recovery plan.
We will be disciplined as we restart flying, and our focus will be on cash generation and maintaining our leading position in corporate SME and leisure segments. The loyalty program enhancements will also provide more value for members. Putting all that together, we are well positioned to manage through the short-term impacts of border restrictions and to recover quickly. This slide shows the estimated phasing of the benefits from the recovery plan. We are expected to save AUD 15 billion over the next three years.
This includes AUD 2.4 billion of restructuring benefits, AUD 2.6 billion from rightsizing, AUD 4 billion in direct savings from reduced activity, and AUD 6 billion from reduced fuel consumption. And we expect to deliver AUD 1 billion of ongoing annual savings from the restructuring program from financial year 2023 onwards. Looking at financial year 2021, we are targeting AUD 1.7 billion from rightsizing initiatives and AUD 0.6 billion from restructuring.
We are making good progress with both programs on track. In particular, we are on track to achieve the removal of about 4,000 of the targeted 6,000 roles by the end of September, and while our flying continues to be at reduced levels, we are managing excess resources through a range of measures like stand down and leave real pay. Our suppliers have provided great support through the past few months, and we continue to work with them to achieve the rightsizing benefits and restructuring benefits anticipated in the recovery plan. This includes savings across our property footprint, our corporate spend, and our operating expenses. The portfolio of group mutually reinforcing business will insulate it from the full impact of the travel restrictions. The group domestic airlines are highly leveraged to the recovery in domestic demand. Qantas Loyalty has a clear pathway to sustained earnings growth.
Qantas Freight is benefiting from consumers shifting to e-commerce, and our international business will benefit from their strong brands and home market strengths when borders reopen. Combined with our financial strength and the three-year recovery plan initiatives, the group is well positioned to benefit as flying returns, and we will measure our progress through a range of KPIs outlined on this slide. We are just at the beginning of the recovery phase, but we are making good progress. Our fleet management initiatives are complete, and we are well advanced with our plans for the permanent reductions in roles. Looking forward to the recovery phase, we remain committed to our long-term targets, and our recovery plan gives us increased confidence we will be successful. Our ambition is to deliver best-in-class domestic margins for both Qantas Domestic and Jetstar domestic businesses.
We continue to believe that the Australian domestic market can support these margins. When borders open, the international businesses will concentrate on where they have sustainable competitive advantage. This includes home market strength, taking Australia to where they want to fly, leveraging our partnerships, and deploying aircraft technology that allow us to efficiently fly longer distance destinations. And for Qantas Loyalty, our growth ambition is still to achieve profit of between AUD 5 and AUD 600 million. But given the impact of COVID-19, we feel financial year 2024 is now a more realistic timeframe. I'll now hand over to Vanessa to take you through the details of the group's results.
Thanks, Alan. The first half saw a strong financial performance across all key metrics. However, the second half has seen a challenging environment given the impact of the government-imposed travel restrictions and border closures and the impact that this has had on our business. Full-year underlying profit before tax was AUD 124 million, including the impact of a AUD 647 million loss in the second half. At the statutory level, the group reported a AUD 2.7 billion loss before tax. This included AUD 2.8 billion of items not included in the underlying result.
The second half is traditionally our strongest for operating cash. But as the travel restrictions were imposed, we acted quickly to reduce our cash burn, resulting in a second half operating cash outflow of only AUD 392 million. This took the full-year operating cash flow to AUD 1.1 billion. We also took steps to curtail capital expenditure, reducing the second half spend to just over AUD 300 million compared with the forecast of AUD 700 million.
To improve our liquidity, we raised AUD 1.75 billion in debt and AUD 1.36 billion through an equity raise. Due to these actions, the group ended the financial year with a strong cash balance of more than AUD 3.5 billion. Our revolving credit lines remain undrawn at AUD 1 billion, taking our total liquidity at the end of the year to a healthy AUD 4.5 billion. Net debt was AUD 4.7 billion towards the bottom end of the target range. You can also see on this slide the traffic statistics for the full year. They reflect the impact of the virtual grounding of the airline during the fourth quarter. Unit revenue, or RASK, for the year was up 1.5%, and our normalized ex-fuel unit costs were up 4.3%. This normalized measure gives you a better picture of the movement in our cash expenses year on year.
You can see the detail of the adjustments to this in slide 11 in the investor presentation lodged with the ASX this morning. Now turning to our profit bridge on slide 12. The full-year FY19 underlying profit before tax was AUD 1.326 million after restating that for the application of AASB 16 and the IFRIC decision relating to fair value hedges. The profit before tax for the first half was essentially flat with the corresponding period. You can see that the material fall in profitability occurred in the second half, with the total COVID-19 impacts of over AUD 1.2 billion. This was driven by the significant fall in revenue of nearly AUD 4 billion, mostly in the fourth quarter. The decline in revenue was partially offset, a AUD 963 million reduction in fuel expenses due to reduced consumption and lower fuel prices.
Our labor bill was reduced by AUD 677 million due to a range of measures, including stand down, annual leave, leave without pay, and also the benefit of the JobKeeper. Aircraft operating variable expenses reduced by AUD 829 million, while other expenses like commissions, capacity hire, marketing costs, and other savings resulted in a further AUD 274 million. The change in depreciation and amortization reduced the underlying profit before tax by AUD 62 million, resulting in the financial year 2020 underlying profit before tax of AUD 124 million. This next slide shows the items that are not included in our underlying result and compared to the prior year. The key callouts are the non-cash asset impairment of AUD 1.4 billion, mainly for the A380 fleet, which will remain in long-term storage for the foreseeable future. The profit and loss impact of the de-designation of hedging of AUD 571 million.
The cash impacts of this are spread across financial years 2019 through to 2023. And lastly, we have recognized AUD 642 million for redundancies and other restructuring costs associated with our three-year recovery plan. Cash outflows associated with restructuring will mainly be in the first half of 2021. Turning to slide 14, which shows the movement in our cash position over the half. Starting on the left, our closing cash balance at 31 December 2019 was AUD 1.745 million. We raised AUD 1.75 billion in net debt and repaid AUD 455 million of debt as well. This includes AUD 450 million bond maturity and AUD 205 million in amortizing debt repayments. These repayments are neutral to the balance sheet as the decrease in cash is offset by a corresponding decrease in debt. Other financial costs included interest, lease repayments, and also total refinancing outflow of AUD 634 million.
Through our disciplined approach to capital allocation, investing cash outflows for the half were reduced to AUD 309 million compared with the original forecast of AUD 700 million. Operating cash flows were a total of AUD 392 million. Cash earnings from operating and corporate segments delivered AUD 432 million in inflow. However, this was offset by AUD 588 million in working capital movements. The collection of receivables could not offset the cash impacts from a reduction in revenue received in advance, payables provisions, and other items. Net hedging outflows were AUD 236 million as foreign currency gains of AUD 100 million helped to offset the losses from fuel hedging. Combined with the AUD 1.36 billion raised in June from the equity raising and restructuring of the business, we entered the recovery phase with a strong cash balance of over AUD 3.5 billion.
Due to the actions that we took to stem cash outflows, the fully loaded average cash burn for the half was only AUD 15 million per week. We have previously talked about the fully loaded AUD 40 million per week in cash burn that we announced in May, and that related to us being in a hibernation state. It excluded the significant outflows for restructuring costs that will be funded by the equity raise. We do expect first half cash burn to be higher as we progress one-offs, including restructuring, redundancies, and reducing deferred trade payables. The second half will benefit from the expected increase in flying. Through the proactive steps we have taken, the balance sheet is strong. Net debt remains at low levels, and our liquidity is AUD 4.5 billion. We also have about AUD 2.5 billion of unencumbered assets, including aircraft, land, engines, and other assets.
This means the group is in a sound financial position to manage through the recovery, and I'll now hand back to Alan.
Thanks, Vanessa. Now turning to the details of the segment performance on slide 17 of the large presentation. First of all, Qantas Domestic, it remained profitable at the underlying EBIT level as the first half profit more than offset the second half loss. After adjusting for the significant depreciation charge, the second half EBITDA was a profit of AUD 75 million. Putting this into context, it is a strong result underpinned by the quick action to reduce net operating expenses by 83% in response to a 97% drop in revenue. The breadth of the Qantas Domestic fleet, which includes aircraft from 50 to 300 seats, provides the flexibility to respond to changing demand profiles as the recovery progresses while minimizing cash costs.
This gives us confidence that Qantas Domestic will be well positioned to benefit from the recovery in the domestic market. Through the last quarter, Qantas Domestic maintained vital transport link to regional Australia, the resource sector, and between major capital cities, and it will continue to support the recovery of domestic and tourism by giving our customers confidence to fly through the induction of the Fly Well program, responding to changing demand patterns by shifting aircraft to where they are needed, supporting and growing demand in the resource sector, and adding new regional routes while continuing our focus on positive cash contribution. The Qantas International segment remained profitable at an underlying EBIT level as profits from the freight business offset losses from the passenger operations and the full-year depreciation charge of nearly AUD 800 million.
In an environment where almost all passenger service stopped, belly space declined, raising demand for dedicated air freight. This supported the record performance at Qantas Freight. And with passenger revenue virtually zero for the foreseeable future, costs were reduced by 90% to minimize cash outflow. 787-9 deliveries have been deferred, the 747s retired, and the A380s moved to long-term storage. The Jetstar Australia and New Zealand businesses were profitable despite the travel restrictions and the impact of industrial action. The highly variable cost structure of Jetstar ensured it remained profitable despite a 99% reduction in revenue in the fourth quarter. Net operating expenses reduced by an impressive 95%. The domestic business remains profitable, contributing AUD 112 million in underlying EBIT to the group overall result. However, the international business fell into losses driven by international border closures.
The long-haul 787 operations were profitable, but the short-haul international trans-Tasman and New Zealand domestic operations were loss-making, and the Asian airlines all suffered losses. Jetstar Asia, with only international operations, has been severely impacted by travel restrictions. Therefore, the fleet there will be reduced from 18 to 13 aircraft through lease returns and redeployment of aircraft to Western Australia. This will result in approximately 25% of the workforce being made redundant. Jetstar Japan is implementing its own restructuring plans and operating about 75% of its financial year 2019 capacity during the August peak holiday period. The exit of Jetstar Pacific in Vietnam is well advanced, with the rebranding largely completed. The New Zealand domestic business was returning to near full capacity by the end of August and remains flexible to evolving restrictions in New Zealand. Qantas Loyalty provided valuable diversifications of earnings and cash flow contribution for the group.
After the record first half result, growth momentum was interrupted. Second half points sales to external partners and other external revenue fell 13%. The travel restrictions reduced points earned from flying, reducing revenue in the second half, but had virtually no profit impact. We've always said that loyalty and Qantas' position in the airlines remains neutral from a profit point of view. With the majority of the country in lockdown and travel restrictions, Qantas Loyalty saw a softening of credit card expenditure, and engagement in travel-related products also fell. Highlights were the growth from the retail business like Qantas Wine, Qantas Shopping, and the Qantas Store, demonstrating the benefits of the diversifications of our earnings stream. Importantly, Qantas Loyalty maintained its relevance to its members and partners despite the virtual grounding of the airline with record during the fourth quarter.
We have been reinventing the program to keep members engaged and rewarding them for their ongoing loyalty. This includes the increased availability of Classic Reward seats, adding new partners like BP and Afterpay that provide more opportunities to earn on the ground, and continuing to diversify member offerings with the Points Club and the Home Insurance, which will be launched later this year. I'll now hand back to Vanessa. I'll take you through the performance against the group's financial framework.
Thanks, Alan. And we are now on slide 22. Our financial framework has served us well. It has guided our decisions on capital structure and capital allocation that have built the strong foundations from which we are able to launch our recovery plan. I think it's helpful to outline what the three pillars of this framework are as a recap.
Firstly, maintaining an optimal capital structure that minimizes the group's cost of capital. The group's optimal net debt range has reduced from AUD 4.5 billion-AUD 5.6 billion as a result of the impairment that we recognized in the statutory accounts. This has had the effect of reducing invested capital and reflects the decreased cash-generating ability where ROIC is at 10%. The supplementary slides contained the detail of this calculation. Secondly, delivering a ROIC above 10% through the cycle remains our focus. and finally, ongoing disciplined allocation of capital, which will be first to reduce debt, then disciplined investment in the business with any surpluses generated to be returned to shareholders.
Our optimal capital structure provides financial flexibility even under a range of scenarios in the next financial year. We maintain this view because we are starting the year with a low net debt. FY21 has no major refinancing until June 21.
We remain investment-grade with no financial covenants reflecting debt investor confidence. We ended the financial year with substantial short-term liquidity, and the group retains a pool of unencumbered asset valued at about AUD 2.5 billion. The FY20 fuel expense was fully hedged, providing significant protection in the first half, but a material reduction in flying in the fourth quarter resulted in us having an overhedged position. The group acted quickly to close out this exposure. FY21 hedging was also restructured to minimize potential for losses to overhead positions, and the hedge accounting impact of the ineffective hedging at June was AUD 571 million. That was recognized in our statutory result. It reflects the mark-to-market based on actual and forecast fuel consumption. Foreign currency hedging remained effective, so there has been no de-designation of those instruments.
After allowing for the foreign currency hedge gains, the FY20 cash flow impact was AUD 236 million and about AUD 300 million deferred to the future. In line with the reduced flying in FY21, fuel cost is expected to be lower than FY20, with fuel and foreign currency hedging managed to reflect changes in capacity. To conserve cash, the group reduced its net capital expenditure in the second half to AUD 309 million, saving nearly AUD 400 million compared with our forecast of AUD 700 million. This included the cancellation of non-essential and uncommitted CapEx and the deferral of deliveries of the 787-9 Dreamliners and A321neos. The group also canceled approximately AUD 350 million of shareholder distributions. As part of the recovery plan, the group recapitalized the business, raising AUD 1.43 billion through a fully underwritten institutional placement and retail share purchase plan.
The conservative capital allocation and equity raise strengthened the balance sheet by more than AUD 2.1 billion. In the short term, our fleet strategic priorities will be to focus on minimizing capital expenditure while the majority of the fleet remain grounded. Right-sizing of the fleet is focused on putting the A380 fleet into long-term storage for the foreseeable future, bringing forward the retirement of all of our 747s, redeploying grounded aircraft to areas where we have higher demand, potential for returning up to 16 leased aircraft if surplus to requirements exist, and reintroducing fleet on the basis of providing positive cash contribution and to optimize capitalized maintenance expenditure. Renewal of the fleet is temporarily on hold, but we have confidence in the future. Also, the recovery is cemented, and the balance sheet permits reinvestment in fleet.
It will be on the agenda again, as will the opportunity for Project Sunrise and the ability to fly non-stop to places like London and New York. Now back to you, Alan.
Thanks, Vanessa, and now looking forward and turning first to the domestic market, we are encouraged by the improved demand trends from the low point in the fourth quarter. In July, even with the issues in Victoria, we flew 19% of financial year 2019 capacity above our plan of 17%. In August, we now expect to fly 20% of financial year 2019 capacity down from our planned 32% due to the reintroduction of border closures and quarantine requirements. The outlook remains uncertain due to the intermittent border closures, and it is likely that more tough decisions will have to be made.
But we know that the intention to travel remains high, so when borders open, we expect a strong rebound in demand. And we're seeing that in some of the intrastate markets with demand for routes like Brisbane to Cairns and Perth to Broome above pre-COVID-19 levels. And the resort market is still going. Loyalty is expected to continue to deliver a strong cash flow contribution to the group. Engagement with the program and demand for Qantas points remain strong, and we are growing opportunities to earn on the ground. The easing of domestic travel restrictions will provide the opportunity for customers to take advantage of the increase in availability of Classic Reward seats. And we are also getting ready to return to growth, and we have a strategy to minimize the impact of COVID-19 with plans to continue to grow new earnings streams.
International border closures and quarantine restrictions remain in place with group international capacity canceled through to October 2020. International destinations are still unlikely to open until July 2021, with the possibility of an earlier restart for our Trans-Tasman routes. So the majority of the group's international fleet is expected to remain grounded in financial year 2021. But we are encouraged by our customers who tell us that the intention to travel for international still remains high. Turning to freight, domestic freight demand is expected to remain strong due to growth in e-commerce and a growing customer base. Our first A321 dedicated freighter will arrive in October 2020 to meet this higher demand. Internationally, we expect belly space capacity to be negligible through 2021, while the freighter demand will be strong, though not at peak levels seen through the fourth quarter of 2020.
Demand is expected to normalize above historical levels in the first quarter before growing into a traditional Christmas-related peak in November and December. We will continue to support the government's International Freight Assistance Mechanism through the first half. The domestic market freight and loyalty will underpin the group's cash flows through financial year 2021. Through the last few months, the support of our customers has been fantastic. They are key to our recovery. Our research shows that intention to fly remains high. And while we have seen great success from our sales campaigns, particularly with Jetstar's ultra-low AUD 19 airfares, it was the biggest sale in Jetstar's history. And there is strong demand in the resource sector, so we are deploying aircraft into those markets. To give customers more confidence to book, we have introduced more flexible booking terms and conditions in case circumstances change.
For those that have travel credits and vouchers, we have made it easier to redeem them to improve flexibility and extend the validity. As safety is our first priority, we have introduced the Fly Well program to ensure customers and staff feel safe when they travel. Importantly, we are ensuring our customers are being rewarded for their loyalty. We have extended Qantas Frequent Flyer tier statuses for 12 months from the anniversary. Through growth in the coalition partners like BP and Afterpay, there are now more opportunities than ever to earn points on the ground. As flying returns, we have provided more opportunities to earn additional Status Credits, adding more Classic Reward seats availability in the domestic market, extending Qantas Club membership, and we are reopening our lounges.
While it is clear that financial year 2021 will be a tough year, jobs will go, and many more employees will remain on stand down. And we expect to report on material loss, but we remain optimistic about the recovery because conditions will ultimately improve, and we have a robust plan. And while a lot of things will change, the fundamentals won't. Our dual-brand strategy, our leading loyalty business, our strong brands, these are constants. And it is our commitment to regional Australia and the tourism industry will also remain. Thank you. Now, Vanessa and the rest of the GMC will be happy to take questions.
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. And if you are on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Matt Ryan with UBS. Please go ahead.
Hey, Emma. Hi, Alan. I think this question might just get passed straight to Vanessa. I just wanted to clarify a few things on your liquidity position. So firstly, on your unearned passenger revenue balance, what's the rough split of credits versus cash sitting in the AUD 2 billion at the moment? And then secondly, your payables appear to be flat year on year despite a lot less activity across the business this year. And it looks like there was a reclassification of refunds into payables. So I just hope if you could split out what impact that had? And then just lastly, I think you've just mentioned that cash burn could be a bit higher in the first half, but can you clarify what you're expecting before the addition of those restructuring charges and I guess how that compares back to the AUD 40 million?
Yeah, okay. So the first question is in the rebalance in the balance sheet, the AUD 2 billion in current for passenger has a split of around 75% credit, which actually I think really demonstrates the amazing job that our customer team and our contact center teams have done in terms of enabling customers to feel really confident about putting their stored travel in credit, both in terms of the flexibility and the ease to use that credit and also the extended credit period that we've given. And over the last couple of months, we have not seen that change at all.
If anything, recently we have been proactively speaking to customers, particularly who have opted to take a refund and provided incentives, either bonus points or status. And we've actually seen a really fantastic take-up of that. So hopefully that answers your question there. The second question, can you remind me, Matt, what the second question was?
Just on the payables.
Oh, yeah, the payables.
Yeah, that you've been flying a lot less.
Yes.
Or just, I guess, maybe a direction on the reclassification of refunds into payables.
Yes.
Was that the reason why they were flat?
There's a couple of reasons why it is flat. There's three reasons predominantly. One is that we are recognizing approximately AUD 300 million of refunds that we are recognizing will be paid. And so therefore, that's being reclassified from RIA into payables. We have recognized that there is some short-term deferred hedge liability that will accrue in FY21. And also, we have been very successful, and through great relationships that we've had with our suppliers, both technology engineering suppliers and also airports.
We have been able to defer some of the payables from the first half into the second half or the first half of this financial year. And a lot of those suppliers have also supported, in addition to that, renegotiation of ongoing trade terms, removing minimum guarantees, and also reducing consumption and rates. So I think that just as a call-out from me, just what an amazing support that we've had from suppliers.
In terms of our cash balance, just, I think, it's also another great story in terms of the collective effort that's gone in across the group to really bring down our cash burn in the second half down to a very minimal level, which sets us up, I think, in a very strong way to manage through recovery, so we are currently operating all of our flying is cash flow positive, and with the contribution from loyalty, from freight, and also with the support that we are getting through JobKeeper and the like, we are expecting for the first half to be operating at the operating level at a cash flow positive basis, and as obviously borders open up, that's only going to improve. As you note, half one of FY21, there are some one-offs that will cause us to have a higher cash burn.
Those would include the payment of redundancies, which the majority will be in this half, and also reducing some of that deferred payable balance. I hope that answers your questions.
Yeah, thanks, Matt. It does. If we just compare to the AUD 40 million, though, how does the AUD 40 million compare to the first half if you exclude those redundancies?
So to be clear, what we're saying is the AUD 40 million is our estimated cash burn that will be on average for the year. That doesn't include the redundancies, which were separate from that, but that does include the reinvestment and the financing costs, which a lot of other airlines don't include and includes changes to the working capital. So the actual cash burn from our operations, we think will wash itself with the positives that are there.
It's the refinancing and it's the investment cash flows that take you to negative 40, and that will be the average for the year. And the redundancies, as we talked about, which we raised the equity for, is a separate cost on top of that.
Thank you.
Thanks, Matt. And you got away with eight questions there. We're going to have to keep these shorter or we're going to be here all night. Can I ask everybody to limit themselves to a question or maybe a supplementary question? But otherwise, I see there's well over seven questions online. Next question.
Thank you. Your next question comes from Jakob Cakarnis with Citi. Please go ahead.
Afternoon, guys. Just a question quickly on the government support that you've got during the second half. Am I right in understanding that the AUD 525 million was predominantly in the Q4? And can you just give us a view of how this was split, particularly between international and domestic operations? I think things like the repatriation are most likely to sit in Qantas International, but just a view on JobKeeper if you can or some little extra context, please.
Yeah, Will, I might get Andrew Parker to give an overview of this. Andrew?
Yeah, the government support programs have really been phased largely equally since March. So I don't think you should look at it quarter by quarter, for example. It's been either based on flying activity where there's been refunds or JobKeeper in terms of stand downs and subsidy. In terms of international and domestic, it is again being quite a complex split. So obviously, there's been support for minimum networks, which has been for regional, domestic, and international, as well as obviously the freight support.
JobKeeper, as you could imagine, is that combination as well, right across the business, including Jetstar, and in terms of the AUD 715 million support package, that again has been principally focused on the domestic flying of Qantas and Jetstar because it is principally either a refund or a cost abatement program that is related to flying activity.
Okay, next question.
Thank you. Your next question comes from Owen Birrell with Goldman Sachs. Please go ahead.
Go ahead.
Sorry, just taking myself off mute. Just a quick question for Andrew. Looking at the domestic market into August, I think you're sort of talking to around 20% of pre-COVID level capacity coming on. I'm just wondering if you can give us a sense of the splits between how much of that 20% is resource-focused markets and how much of that is sort of interstate or sort of regional markets. And just as, I guess, a supplementary question, how much of your pre-COVID earnings came from flights to and from Queensland, from, say, Victoria and New South Wales?
So the demand, as Alan touched on, is largely because of border restrictions right now. The demand is all in two markets, into WA and into Queensland. Both those markets are a mixture of resource and business and leisure. The WA market's more heavily weighted to resource. But as Alan also commented on what we're seeing, the likes of Perth, Broome, the demand and revenue on a market like that is actually ahead of the pre-COVID levels. With the resource sector in the west, we saw a strong movement to charter. We also saw changes in demand driven by social distancing, which drove up demand, offset by changes to shift patterns, which reduced demand.
What we're seeing in the west is that those charter operations are now moving back to RPT, which will in turn also drive up the demand that we'll see from small, medium-sized businesses plus leisure. The Queensland market is a little bit more mixed. It's more a mixture of leisure and business traffic. We are seeing the resource sector hold up well in Queensland. We're also seeing strong demand, as I said, within the state, the likes of Brisbane, Cairns are ahead of pre-COVID levels. The border restrictions, unfortunately, have meant that Sydney, Brisbane, which was our highest performing sector, has obviously come off significantly. What it does demonstrate is where the borders are removed, border restrictions are removed, the demand is there. So that is the mix. To your question about the mix of Queensland and WA, I don't think we've ever shared a breakdown state by state.
But obviously, what you can see right now, Queensland and WA are the majority of the profit for both brands in the domestic market.
And we might say that, I mean, we think if obviously with the interstate travel being the big bulk of it, the 20% is the minimum network that will be operating going forward. What we did see, as Andrew said, which I think there's some good statistics that looking at the markets of how well the markets were recovering. We had Melbourne and Sydney before the second wave in Melbourne. In March, it was one service a day. It went up to 11 services being operated. Before COVID-19, it was at 45. So we're seeing rapid improvement. It's back down to basically less than one a day for each brand, five a week, I think, for Qantas and Jetstar. So these are massive movements.
And what's really good about how the group is set up now, both in Qantas, QantasLink, and Jetstar, is that we have the flexibility to take schedule in and out as we see demand coming and take out a lot of the cost associated with it, given the flexibility our unions and people have given us. So we can turn on a dime on these things. If the demand's there, we can add a lot. If the demand's not there, we take it out. And as we said in the presentation, the focus is on cash generation. Everything we're operating is generating cash, and we'll continue to focus on that because our view is that we need to continue to minimize any cash outgoings. And at the moment, which is a great outcome, the operating performance of our business is covering its costs in cash.
It's just the working capital movements and the investing and financing cash flows that take us to that -AUD 40 million. That's a very strong position that we're in compared to a lot of other airlines around the globe. Next question.
Thank you. Your next question comes from Anthony Longo with CLSA. Please go ahead.
Well, good afternoon, Alan. Good afternoon, Vanessa. I had a question on RASK. I mean, it looks like over FY20, it's held up reasonably well on slightly weaker load factor or weaker load factors. So I guess that implies yields have held up as well. We appreciate some of the sales that you have had today that have been really successful, but just wanted to get a sense as to your view on need for discounting, particularly given the internal research that you've done.
And then I guess as a supplementary to that, when you launched that recovery plan, you did sort of give some guidance on domestic and international capacity forecasts, I guess, for FY21. So just wanted to get a sense as to how you're thinking about the domestic piece, particularly given Melbourne at this stage.
Hi, it's Gareth here. Look, I think when you're only flying 20% of your network, yield management becomes a little irrelevant, to be honest with you. But we have seen with what we are flying right now, RASKs are pretty much in line with last year, to be honest with you, that they're a little bit higher than last year. And partly that's because of the change of the network mix.
I mean, we did go out with a AUD 19 sale, which Alan referenced before, really because we wanted to gauge demand and we want to bring people back into flying. And we saw a huge response to that. It was the biggest sale Jetstar's ever run, the fastest sale that's ever taken place. And what that suggests is when borders come down, there is going to be huge demand. And clearly, the domestic borders are going to come down before the international borders. And so not only are you going to have the pent-up domestic demand, you're going to have the switching from international leisure to domestic leisure because people can't go on holiday overseas. So when that time comes, we will surely be running sales because we'll be wanting to get people back into flying, but I think there'll be a huge amount of demand out there anyway.
I think the way to look at it, our research that we've done and the staff and the team have done, is that 95% of our customers are saying that they want to travel within the next year. But it's clear when you look at the profile, people will stagger that. So what we're always doing when we do these sales is that once the borders open up, to get the immediate benefit of getting people to travel. And we can stimulate that. And being honest, we have 220 aircraft sitting on the ground. And we've always said, which is our view, that if we can earn a dollar in the air instead of losing a dollar on the ground, we'll do it. And the faster we get those aircraft back in the air, the better for tourism in this country, better for our people, and better for jobs.
And AUD 19 the way Jetstar worked it, because not all the airfares were obviously at AUD 19, was designed to be cash positive on any flight that got in the air. So we knew we could be cash positive on it. And I think that's the right thing to do in the short term to get this market moving again and to get people to be encouraged to travel in those initial few months when the borders open. Next question.
Thank you. Your next question comes from Anthony Moulder with Jefferies. Please go ahead.
Hey, Anthony.
Good afternoon, all. I appreciate it's difficult to forecast the recovery profile, but you have called out some confidence in a higher market share domestically. I wonder if that's simply a function of Virgin's revised fleet plan relative to your own and therefore more likely to be spread across Qantas and Jetstar.
I might open and start getting Andrew David a comment on it. Yeah, what we've done on that, Anthony, has just worked what our natural market share would be with some of the announcements that we've seen. For example, the A380s and the A320s not flying. And therefore, as a consequence, what we think, given our fleet and our plans, what that share will end up being. And that's what we've came out with. We think there are going to be challenges and opportunities with Virgin coming out of the administration. There will be opportunities because they certainly seem to be focusing in this middle of the market. Whether that's the case or not, we'll see. But that gives us opportunities, I think, in the corporate market. And we've seen a lot of corporate accounts knock on our door wanting to move.
It gives us a challenge, though, because they're going to come out a bit leaner and meaner than they were before, and certainly, they're going to come out probably focused on the SME market and the leisure market, and that's why our restructuring program is really important, because we have to make sure that the advantages we had before COVID-19 continue positive. That's why we're aiming to get AUD 1 billion in cost out each year, because we believe that we can maintain Jetstar's cost advantage and we can maintain Qantas' margin advantage, and that is the best strategic position for us coming out of it, and we're actually really confident on that from what we can see, but it means we have to really focus on this change program and deliver AUD 1 billion. Andrew, do you want to?
That's a fairly comprehensive answer. I'm not sure I can add too much more to that other than to say for Qantas, you look at the transformation exercise we have underway, both the rightsizing and the restructure. The majority of those initiatives are focused on Qantas, which is where it should be, and we're very, very focused on managing our cost base. In addition to that, we will continue to be very focused on serving the corporate and the SME market. As Alan pointed out, we have a number of corporate accounts that have approached us for travel deals. We will continue to invest in both service and product to manage our corporate and SME customers, so we are confident in our position.
Thanks, Anthony. Next question.
Thank you. Your next question comes from Paul Butler with Credit Suisse.
Hey, Paul.
Please go ahead.
Hi there, Alan. Just a question for you. Given you've highlighted the potential to get to 70% domestic capacity share with Virgin pulling back, but then we've got the potential for a third competitor, Rex, who's allegedly looking for some 737s. So I'm just wondering if you give us your thoughts on the market structure, because over the last 30 years, whenever we've seen the third competitor come in, we see a period of higher competition and then it reverts to a duopoly. Presumably, at some point in Australia's future, there might be three sustainable airlines. But how do you see the market in terms of where it is now compared to what we've seen in the past when a third competitor has come in?
Yeah, well, first of all, I think it shows how open the Australian domestic market is. It's the only domestic market, I think, in the world where 100% foreign-owned airline can send an airline up here and operate on it. It is the most competitive market in the world. It's the most open market in the world. And it shows that over the decades that the Qantas Group has done really well. And we keep on reinventing ourselves.
We created Jetstar to be competitive against the entry of Virgin. Jetstar was originally the Impulse model that we took over at the time. So we have this ability to reinvent ourselves wherever the circumstances are. And I've no doubt that that will be the case. And there have been airlines that come and go. Some airlines like OzJet pick a wrong business model. Some airlines like Virgin have moved up and down the market trying to compete against Qantas and struggle for a space.
So I would bet on Qantas every day of the week when it comes to the domestic market, because we do have a record of readjusting, reinventing, and redoing what we need to do. We've got amazing people. We've got an amazing product. And we've got an amazing low-cost carrier that's unique in the world. What could Rex do? Yes, they could take aircraft and operate on the key markets. What we do find that gives us an advantage is that even looking at it, I don't think I can see anybody getting a cost advantage over Jetstar. That's clear. And Gareth's agreeing with that because we look at what we've done in scale, what we've done on cost, and we think Jetstar will be no matter what happens to the lowest cost carrier. So we're not leaving any space there. And clearly, Qantas is the best network carrier.
It's got the best frequency, the best loyalty program, the best lounges, and it's got a network. So it's very hard for somebody to come in and replicate that from day one. So I'm confident no matter what happens that we will be in a good position on it. That's what's happened in the past. And people have come and gone. The more the merrier in some cases, because it shows to the competition authorities this is a very open market, and that was always going to be the case. But bet on Qantas any day of the week because I'm sure we will come out of this as strong as we went into it. Next question.
Thank you. Your next question comes from Cameron McDonald with E&P. Please go ahead.
Good morning. Good afternoon, Alan. Can I start strategically just looking through this crisis and you come out the back end? Do you think that, in particular, international flying is going to become materially more expensive?
I don't know. What's the ( Uncertain) Don't you want to answer that?
So the question is, I get okay, by the way. If international travel is going to become materially more expensive, and there's a left-field question. I hadn't thought about that one, but I can't see why it would. Effectively, the international market has been competitive for some time. We're in this period where COVID has come and interrupted our plans. Yes, everyone's needing to reinvent themselves.
I think, if anything, what it's going to be is potentially competitive at the other end, as airlines that do successfully reinvent themselves have come out with a lower cost base, which is why we've got our transformation program to ensure that we're competitive in that space, and there may be, or there definitely will be, failures in the aviation industry where there's going to be less players, so I think maybe the balance of those two may somewhat offset each other, but it's going to be a bit early to call what's going to be happening with airfares going forward, other than to say that the work that Steph and the team have done have absolutely confirmed what we always thought is that people are pretty keen to get back to international travel when the borders open.
So we do expect some pent-up demand, and that might be offset by some weakness in the global economy, I guess. But the pent-up demand is there.
And I think it will probably depend on each of the individual markets because there's no doubt that a lot of airlines in some of our key markets are taking on a lot of debt, a lot more than Qantas is. The American airlines, as we all know, are taking on a massive amount of debt at the moment. The Japanese are the same. And that has to be repaid at some stage, which I think what's a good thing for us is that we have had the discipline in the domestic market for some time.
I think with Virgin coming out of administration and new owners, that is going to be more so the case because they will want a return going forward. And I think it's the same on some of the key international markets because I think these guys will have to repay that debt, and that discipline is likely to be there. So in the medium to long term, I'm optimistic, and we are as a team are optimistic that we may see some more discipline appearing internationally that wasn't there in the past because of the COVID situation and getting returns back where they need to be in order to repay the huge amount of money that's been borrowed in the last year and will be borrowed in the next year. Next question.
Thank you. Your next question comes from Richard Jones with JPMorgan. Please go ahead. Hi, Alan.
Two quick ones, if I may. Just is there penalty payments for the deferral of the plane orders, and is that going to be payable in FY21? And then secondly, have you looked at or considered securitizing loyalty like the U.S. airlines have?
For the second part, I'll answer absolutely no way. We're not going to do that. We don't need to. We have a lot of assets, and we were able to raise equity. So we've got plenty of liquidity going forward. And we have another AUD 2.5 billion of unsecured assets. So that's not on our radar. It's not something we would consider given the value of loyalty. And we've sort of been there, done that before. And on aircraft?
Yeah. We have, as you said, been able to defer all of our A321 deliveries and also the 789 deliveries that were expected this year. We have made a small payment to secure that for the 789s. And the relationships that we have with both Boeing and also with Airbus have proven to be invaluable in enabling us to make these deferrals. With a strong position that the Qantas Group has had is that those deliveries will be deferred until we can bring them in and operate them on a cash-positive basis.
That's great. Next question. Sorry, go ahead.
I was just going to say, is the payment already made, or is that the FY21 payment?
Yes. Payment was made in July.
Okay. Thank you.
Thank you. Your next question comes from Scott Ryall with Rimor Equity Research. Please go ahead. Scott.
Hi. Thank you very much. Alan, you've been pretty clear about where you think the restrictions internationally will fall. But you talked a little bit to the state restriction border closures and those sorts of things. I wonder if you could comment, what are the main preconditions you see for those borders opening back up? And in amongst your answer there, perhaps you could just comment, you've talked about the corporate travel sector may be slower to return. Could you just talk about what you think the corporates are thinking about too with respect to their travel plans that you're speaking to? Thank you.
Okay. There's a couple of things there. I might start at the borders and get Andrew Parker to come in on it as well. And then I might get Steph to talk about what the different customer segments are actually saying and what we think would happen there.
On the borders, we've been clear. I think the federal government and a lot of people in the travel industry is that we just like some certainty being brought to how borders are going to be managed going forward, and we believe the best way of doing that is through the National Cabinet. I know I'll meet again this Friday, and what we can all agree on is that the closure of the international borders have helped protect Australia from the worst of COVID-19. What we've all agreed on is that the Victorian borders need to be closed when the second wave happened, but what doesn't seem to be sensible, and there doesn't seem to be any medical reason for doing it or any safety reason for doing it, is states to have closed the borders with zero cases to states to have zero cases.
And so all we've asked for today, the federal government, I think, is in agreement, and we're working through with the states, is how we get a scientific-based position that's very clear to everybody and gives certainty. And it will be clear both directions that when the borders need to open, what would you need to see? When the borders need to close, what would you need to see? And everybody has a scientific-based, fact-based decision-making process because it seems like politics has drifted into this, and the scientists and the medical advice is not dictating, and it should be that case. And the other thing we said, which I think is at a limit, is that COVID-19 will have an impact on the economy. The JobKeeper is keeping the economy afloat. The government can't afford to keep paying this amount of money indefinitely.
And the economy needs to get off that support system and functioning again. And tourism and transport is a key part of that. And I think the federal government has realized that, is very strong on it. And the states have to get there because some parts of these states are very dependent on tourism. Andrew, do you want to comment?
Yeah, I think that covers it. The only thing I'd add is to Alan's point on the divergence of views. You've got Tasmania that has announced early December. You've had the Northern Territory speculate 18 months. You've had Western Australia have a few goes at defining when it might open. And I think if we think back to May when the National Cabinet released its COVID-safe plan, there was clarity back then about when it was deemed safe based on medical advice to reopen a whole series of elements of the economy. And that's what we really want to revisit, which is how to have a framework so that not just Qantas, but all of us can plan in terms of those criteria when it is deemed safe to reopen. So we're doing a lot of work with different government agencies at a federal and state level, and we'll continue to do so so that we've got that clarity.
Thanks, Andrew. And Steph?
The customer segments and demand. I think Alan and Andrew have both mentioned already. What we've seen is the largest segment that's desperate to travel is obviously leisure and particularly VFR. So people, I think, are feeling desperate to see their family and friends. So we expect, as soon as the borders come down, that to come through thick and fast. But we also see pent-up demand in our business sectors. I think particularly small, medium enterprises who have more flexibility and control over their travel, we expect to come back quickly, and corporates as well. But I think what we know is, apart from the pent-up demand, we will be doing everything we can to stimulate as much demand as possible to get our planes back flying and our people working. So you can expect us to be very active as soon as we can to fill every seat.
We might have one last question, I believe.
Yes. Your final question comes from James Teo with Bloomberg Intelligence. Please go ahead.
Go, James.
Hi, Alan. Hi, Vanessa. Question here on the impairments and ineffective fuel hedging. Just trying to understand the capacity scenario that's underlying these impairments or ineffective hedges and what kind of changes in the market or in the COVID situation could potentially lead to more impairments or more ineffective hedging losses. Yes. That's my question.
Thank you. Okay. Thanks, James. Obviously, in the second half, as I mentioned in the opening speech, we had a fully hedged position. That's something that is consistent with our hedging principle. And so when we obviously not expecting the significant reduction in demand, we closed out those hedged positions rapidly. If we look forward, though, to FY21, our hedge profile is not significantly committed. We've got, particularly for the first half, a substantial amount of our hedging that is in place is options. And the risk of any further risk materializing is very low.
Any committed hedging that we have in place through to December is equivalent to what we flew for July. So that would obviously account for the current situation remaining as it is until December. So we feel that any risk of any further ineffective hedging is extremely low.
Thanks, Vanessa. And thank you, everybody, for the questions. That was the last question. And I'm sure we'll be talking to a few of you over the next few days. And we look forward to speaking to the rest of you in six months' time. Thanks very much.