The Qantas share price has risen by 1.5% so far today after the airline announced its Sydney-Melbourne route will resume flights immediately.
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Qantas Airways Limited (ASX: QAN) has announced that its Sydney-Melbourne route will resume flights immediately, following the decision by the New South Wales Premier to reopen the state’s border to Victorians starting today. At the time of writing, the Qantas share price has risen by 1.52% in early morning trading to $5.35.
How will this impact Qantas?
The Sydney-Melbourne route was the second busiest domestic route in the world prior to the pandemic, with the Seoul-Jeju route in Korea taking the number one spot.
The Qantas share price is on the move today after the company announced that today’s flight resumption will increase its domestic capacity to just under 40% of pre-COVID levels. This is up from 30% prior to today.
From today, Victorians wishing to travel to NSW will no longer have to get government permission or quarantine for 14 days.
In addition, Qantas Chief Executive, Alan Joyce, today says he’s optimistic that Australia will enter into a number of travel arrangements with other COVID-safe countries, starting with flights across the Tasman as early as the first few months of next year.
We’ve always planned that by July next year we will start reactivating our long-haul international aircraft and get a lot of our people back to work. The news about the vaccines is very positive which I think is great for that border reopening plan.
Brief take on Qantas
Qantas commands a market share of around two thirds of Australian domestic air travel. Combined with its low cost carrier brand, Jetstar, the company is also Australia’s largest international carrier, with 25% of Australia’s international traffic. Qantas has defended this leading market share pretty much for the past decade.
Despite its dominance in the domestic route, Qantas has struggled to compete in the international space. This is partly due to geography. Australia is not a natural hub location and, as a result, Qantas operates at a cost disadvantage against its Asian competitors.
This cost disadvantage on international routes is reflected in the company’s results – where its earnings before interest and tax (EBIT) is 4% for its international division, but a much higher 12% for its domestic division.
However, this apparent Achilles’ heel turned out to be the company’s savior during the pandemic, as international flights were grounded in favour of domestic travel.
Let’s take a look at the Qantas share price in 2020
Like most airlines, the Qantas share price has taken a beating in 2020 as a result of the pandemic. Its share price started the year at $7.11, and dropped to $2.11 in March at the height of the travel restrictions. Since then, the Qantas share price has recovered to its current price of $5.35.
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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.