Thank you for standing by and welcome to the Qantas Airways Limited analyst call. I would now like to hand the conference over to Mr. Alan Joyce, CEO. Please go ahead.
Thanks, Izzy. Good morning, everyone. I'm joined here by Vanessa and Fran. Hopefully, all of you have had a chance to read through our announcement outlining the customer and employee impacts of the coronavirus-related network cuts. I'd like to make some broader comments first, and then Vanessa Hudson and I will be happy to take your questions. Obviously, the impact of the coronavirus public health crisis is unprecedented, with the aviation sector probably the hardest hit.
In response to the government advising against all overseas travel and the fall in demand for travel, earlier this week we announced a 90% cut to international capacity and 60% cut to domestic capacity. With the government advising against, again, all overseas travel in the middle of this week, we've now suspended all scheduled international flights from the end of the month. We are in ongoing discussions with the federal government about some flights continuing in order to maintain some key strategic links. This will mean that we'll have at least 160 aircraft on the ground, including all of our A380s, all of our 747s, and all of our 787s.
As a national carrier, we'll still maintain key transport links for people and freight in the domestic markets, and we'll still fly to all capital cities and major regional centers, as well as key remote communities, but frequencies of flights will drop on busy routes like Melbourne to Sydney. We've also now established a cash task force reporting to Vanessa and pivoted the finance team to focus on cash preservation. The task force meets daily, reinforcing the level of importance and attention this has within the business.
We've also taken steps to protect our revenue received in advance and give our customers confidence to improve future travel. Most of our corporate customers have already canceled their trip because we've taken additional steps to allow them to travel in the months ahead while we are increasing the transfers for these credit balances. We're expecting the new period of September around 40% to be able to take that flight. As a result, our conversion of customers at 30-month disruption has been strong and demand close. In addition, we ensure that we're flexible and capable. Once we have routines back, all cash flows and working capital to make most costs variable.
This has made the network operations cheaper than other customer goals and pain sharing across the entire value chain. We have requested and made customer compliance, effective demand management, and seen a better way to help stay on cash cable. Fortunately, we've paused automatic attrition and as we have no flexible workforce, we will be standing down 2/3 of our employees. We want to preserve as many jobs as possible so people can use their annual leave and will continue to be paid while that leave lasts. However, for many, unpaid leave seems inevitable.
We know this will be incredibly hard on our people, so we think it's appropriate, and as a prudent financial management, we will defer the interim dividend for our shareholders. This was previously scheduled for payment from the 9th of April 2020. It's now scheduled for the 1st of September 2020. We entered this crisis in a strong position. We maintain our investment-grade credit rating, now have no net debt, a cash balance at around AUD 1.9 billion, undrawn facilities at AUD 1 billion, and AUD 4.9 billion of unencumbered aircraft.
We have already proactively refinanced our financial year 2020 debt maturities in the first half of 2020 and have no major debt maturities until June 2021. We are currently in the market securing additional cash liquidity as we work through the current period of restricted travel, and we have received strong support from our lenders. The relief package the government announced yesterday is helpful, and Qantas will receive its share of that relief, including the refund of costs paid from the 1st of February. Let me close by saying this: our focus is absolutely on ensuring we maintain our financial strength, and we're taking very decisive actions to make sure we remain in a strong position.
Travel demand will bounce back, and when it does, we'll be very well placed to take advantage of the opportunity. Thank you, and we'll now open to questions. 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're on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Cameron McDonald with E&P. Please go ahead.
Hey, Cameron. Morning, Cameron.
Morning. Can you hear me?
Yeah, we can hear you. Go ahead, Cameron.
Yeah. So good morning. A couple of questions from me. How much cash does this save you through to the end of 2020?
Sorry, Cameron. I didn't quite hear you. You're breaking up.
Sorry. How much cash do you think will this save you through to the end of the financial year?
Well, the way to look at it, Cameron, and the way we've been looking at it is that we've been very deliberate all of our costs. So if you look at now, our largest cost is labor. And unfortunately, as I mentioned there, with the demand drying up, we have no work for 2/3 of our workforce. So once we burn through the leave balances, and I get Vanessa to talk about how much we have in leave balances, once we burn through leave balances, because that will save us cash, but then when that's gone, we won't be paying those 2/3 of the people because there is no work.
And it will mean that we have to take any further capacity cuts and increase that number of people on stand down. That will also very relieve that labor costs. Our fuel costs are obviously very relieved, and all of our other major costs, air navs, airport costs are all variable, and with the government's announcement yesterday, air n avs, essentially a lot of our duties on the company are no longer applicable for at least the next six months.
So we've been working very aggressively and very hard to take every effort to make sure we match our schedule to the demand we're seeing out there, doing it before any other airlines done it, done aggressively to make sure that we're not burning cash, and now, with the announcement today and what we're doing with stand down, we've very relieved our largest cost after leave balances. Vanessa, do you want to talk?
Yeah. So the leave balances that we have on our balance sheet is approximately AUD 700 million. And obviously, that is not spread evenly across our workforce. There is a large group of staff who have longer balances, but there's also a proportion of our people that have very low balances. So as Alan said, our focus will be to burn through our leave balances, but also it is inevitable that we will see quite quickly from this stand down that a number of our employee groups will be on stand down without pay. And so moving, as Alan said, our payroll to a position where it becomes much more variable, much more quickly.
And we're also looking very aggressively right across all spend categories to variabilize those. We've had some amazing support from our supply base who are standing shoulder to shoulder with us and not applying commitments in contracts as this is a shared approach, and we've just been overwhelmed with the support that we've also got from our supply chain, so it really does give us confidence that we've got the focus, but also the support to do what we need to work through, and as Alan said, we're managing to a six-month plan right now, and we also have levers that go beyond that if we needed to.
I should say we'll have plenty of cash to survive at least six months and a lot longer than that. We don't know when this is going to end. We are looking at could this last a year? Could this last 18 months? Could this get worse in terms of capacity being put down? And as we say, Qantas is in a great position to withstand that environment. We're making sure that we take all the actions now, take them upfront, take them early so that we minimize our cash burn.
And we will be minimizing our cash burn to the lowest levels possible with the initiatives we're making today, which will give us the longest period of time. So if this lasts a year, 18 months, we're well equipped to try and get through that. Any other questions?
No, thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We will pause briefly.
We don't have any other questions at the moment, so if you need to ask a question, that would be great. If you don't, we're still going to do a media call at 10:00 o'clock. So if anybody has any further questions, you can ask them now. Otherwise, if you have questions offline, you can ask them to Fran, and Vanessa will be happy to help with that if people don't have anything else they want to ask. I'll give it two more minutes. We're still seeing zero questions come up. Cameron was the only one today. That's unusual.
There's still showing no further questions.
I was saying the conference call isn't working.
Oh, we're hearing the conference call isn't working.
Can you give them the instructions?
Again. Once again, if you do wish to ask a question, you'll need to press the star key followed by the number one on your telephone keypad.
Okay.
The questions aren't registering.
So, can people try star one again? We're hearing that people may not be able to register questions. Suppose this is the trouble where everybody working from home tells us we can't handle it. Sooner the better we get them. I've got another question. Good. Next question.
We do. Your next question comes from Stuart Walsh with Fidelity. Please go ahead.
[crosstalk] . I've got the old details. That's okay. So just a quick question for me. In terms of obviously pretty major changes, I mean, what are the expectations in terms of traffic coming back and the government relaxing their restrictions in any conversations that you've had with government around that side of things? And then I guess the other piece that I'd be interested to understand is how long do you anticipate you will be able to sustain the current state of affairs given the changes that you've made?
So Stuart, look, I don't think anybody knows. I think the government is saying that this could last six months. It could last longer. I think you look at other jurisdictions and you can see the Chinese seem to have got under control less than that. The Koreans seem to be doing something that's very similar. So it depends on what happens. And the measures the Australian government are taking are early on, so they're getting ahead of the curve to try and flatten the curve, which is the approach that's here. So given that, I don't think anybody could pick a time frame on it. We're giving ourselves the ability to survive the maximum amount of time.
So we'll easily get through six months, 12 months, and beyond that. And that's the intent. We're variabilizing our cost base. We're making sure we take the dramatic actions very early on. We don't let cash burn. Vanessa went through all of those initiatives there, so we have plenty of time. We think we have more time than this will be around, and when it recovers, it will recover quite significantly, and that will be a huge benefit to us because we think there'll be a lot of pent-up demand, both domestically and internationally, and we have plans if it does get worse.
There are potentials for domestic travel to get worse, and we have the time for that, and we are setting ourselves up, so I think all of the actions we're doing will give us a significant length of time beyond any time anybody's forecasting this crisis to last.
So Alan people are texting me questions. So I have a question. Can you talk about the cash flow impact from the cancellations? I think that the cash flow impact from the cancellations is both, as we spoke about or as Alan spoke about earlier, the waivers and the approach that we're taking to managing revenue received in advance associated with those cancellations. We've got and have seen a lot of our corporate customers have moved that revenue into credit. That's a very typical thing that we've seen corporates do, and that behavior is continuing. From a customer perspective, the way we've structured the waivers is to be very generous in the amount of time that we're giving customers to replan their travel. We're giving them at least six months with then a further 12-month leeway to take that travel.
And so that is essentially an 18-month time frame. What we've seen because of that, customers have been happy to put a large proportion of that travel into credit. And we're also doing that in an automated way now rather than letting the customer specifically choose, even though you have the option to refund. What we're seeing is that customers are taking that up in a large proportion. Obviously, with the capacity reductions, the cash flow in terms of outflows will decrease substantially.
Our fuel will decrease. All of our variable costs will decrease, and the decisions that we're taking today around labor, we are now in a position where we've variabilized our labor as well, so we are managing to a cash flow that, as Alan said, will provide us with time to at least a minimum of six months, but beyond that, three to 12 months and longer than that as well.
I think what we do anticipate that our cash flow on a net basis will look like what I've described as a bathtub, where we will probably see variations over that time, and as we come out of the recovery phase, what we've seen in the past is that when that demand comes back and that revenue comes back, we'll be in a situation where we'll have substantial revenue and cash inflows flowing in the latter part of the period.
We have another question online.
Our next question is, is there any more transparency on government initiatives overnight?
So the government has announced initiatives that help us with airport that helps us with aviation-related charges like excise duty and air navigation fees, and that's a package for the entire industry, which is the right way of doing this. It's industry-related and it's across the industry, and what we see the government doing now, overnight, is talk about a social package for people that are stood down or people that are made unemployed. I think that's the right way for the government to spend their money.
We will have up to 20,000 people stood down from the company, and eventually, when leave runs out, they won't be getting paid, so the government supporting them and supporting the general economy, I think, is absolutely the right thing to do, and that's where they should focus the money. We've got plenty of bandwidth. We've got plenty of cash.
And we've got plenty of time. And I think when we look at how this crisis is going to last and what we can see happening on the rest of the world, it gives me great confidence that we can get through it. But the healthiest airline, I think, in the world. We've had a big, strong balance sheet. We've got a lot of unencumbered aircraft. We're raising more money and getting a good positive reaction from the markets today. We have a lot of runway here, and that doesn't worry me in the least. So we've got the right settings to get through this, and I am very comfortable with where we stand. Next question.
Can you talk about the potential for CapEx deferral?
Yeah, so as we said before, we have a cash focus, and that focus is looking at all elements that are driving our cash outflow, including CapEx, but also initiatives that otherwise would be a P&L effect, so we are actively in conversations with Boeing and Airbus to see whether we can defer CapEx. We are also looking right across the spectrum of activity of items that would have been capitalized, so to speak, but cash through that lens is what is the priority for us, and I think that the point that I wanted to say today is that we are looking at everything, as Alan said, to bring our cash flow to the minimum that we believe is required to sustain us through this process.
I can say we're also, I mean, as Vanessa said, we're stopping only on necessary capital expenditure. Looking at everything from delaying lounges work on down to the reconfiguration of aircraft. We're talking to the manufacturers about pushing their PDPs. We're looking at some suspension of some of the aircraft programs that are there, so there may be some delays on aircraft, which may be helpful, and as we announced before, we've pushed out the decision on Sunrise that won't happen for later in the year, and we've got confirmation from Airbus that they will hold the slots in 2023, and we'll make that decision at the end of this calendar year. Next question.
Thank you. We do have a question on the line, and it comes from Michael Moran with Nikko AM. Please go ahead.
Hey, Michael.
Hi, Alan.
Michael, go ahead.
Can you hear me?
Yeah, I can hear you. Go ahead, Michael.
You can hear me? All right, sorry. Yeah, I just had a question on the fuel hedging. Sorry, there's a bit of a delay. I'm just going to switch on. The fuel hedging, can you just talk about what the cost you'll incur, even if you don't fly a single mile, in terms of the fuel hedging costs? And also maybe what the strategy is going forward for hedging in this environment where you're not sure about exactly what flying you're going to be doing?
Yeah. So given the substantial reduction in our capacity, we do have an overhedged position. And that will come at a cost that we'll realize in the next couple of months. That's going to be a key part of how we manage our cash inflows and cash outflows. So in terms of a specific number, that's just going to be a part of our fuel consumption and cost that we have in this quarter, but also into next quarter. As we look going forward, we are going to continue to think strategically about the way in which we hedge, both in terms of making sure that in the first half of next year, as we believe that this lower demand profile will continue with a much higher participation.
We've got a much larger proportion of outright options, so that we've got an ability to participate more effectively in the lower fuel price, and beyond that, we are thinking around how to structure our hedge profile to ensure that we've got both participation but protection as well from a higher fuel price, because what we've seen in the past is that when demand returns and recovers, that fuel price most likely will increase, so we are staying flexible and thinking about both sides of the recovery process.
We have no further questions, I think. Is there any questions? Star one, I think, for questions if anybody else has them.
That's correct. We are showing no further questions at this current time. But if you would like to ask a question, please press star, then one on your telephone. We are showing no further questions at this time. I'll now hand back to you, Mr. Joyce, for closing remarks.
So thank you very much for that, Izzy. And can I thank everybody for being on the call? As we said, we are in a position where Qantas is taking probably the most dramatic and drastic action of any airline. We're getting ahead of the curve, and we're getting ahead of where other airlines have been around the world. With today's announcements, we are taking the capacity out in advance of it burning us cash. We're taking the capacity out.
And unfortunately, having to stand down 2/3 of our workforce, which means that we've variabilized a lot more of our costs, which gives us a lot more time in order to make sure that we survive whatever period of time that this virus impacts the economy and impacts on travel. We're probably set up better than any airline in the world with the cash we have, with the financing that's available to us, with the runways that we have going forward. We're very comfortable in our position.
We continue to be comfortable in our position, and we'll give further updates as this evolves, and I'm sure it will evolve, but this will end, and when it does end, Qantas will be well positioned to take advantage of it. We will have the aircraft and have the people. They're being stood down. They're not being made redundant. They're being stood down because we believe we will need them again. We believe that we'll need to get the aircraft back in the air. We believe that there's a big rebound of demand when that happens, and that will be fantastic for the company and its people, so thank you very much.
And if there's any further questions, I know some people couldn't get questions through because of the technology, so feel free to ring Fran, and she'll answer your questions with Vanessa. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.