SYDNEY (BLOOMBERG, REUTERS) – Australia’s Qantas Airways will cut domestic capacity through March 2023 as it grapples with higher fuel prices and staffing issues at airports that are affecting much of the industry globally.

The step is likely to drive fares even higher.

Flying in Australia from July to September will be cut by 15 per cent, more than the airline previously forecast, Qantas said on Friday (June 24). Some 10 per cent of flights will be scrubbed from October to the end of March. 

The depth and duration of the reductions highlight the burden on airlines as Russia’s invasion of Ukraine drives up the price of oil – and jet fuel. With travel demand soaring, the capacity cuts should help Qantas financially because remaining flights will be more full and the airline is under little pressure to reduce ticket prices.

“These reductions, combined with robust international and domestic travel demand, are expected to help the group substantially recover the elevated cost of fuel indicated by forward oil prices,” Qantas said in its statement. 

The carrier said it remained on track to swing to a profit in the next financial year starting July 1 and had reduced its debt to below pre-pandemic levels, including a A$1.5 billion (S$1.44 billion) decline in the last six months as conditions improved.

Qantas has been able to recover the cost of high fuel prices in the international market through higher fares, chief executive Alan Joyce said this week, but has been unable to do so in the domestic market.

The latest round of capacity cuts for July and beyond will take domestic capacity to 99 per cent of pre-pandemic levels in the first quarter and 106 per cent in the second quarter, Qantas said.

Most of the capacity will be cut from high-frequency routes, the airline said. It comes as the airline’s on-time performance levels have been falling, and Australian airports have been struggling to secure enough workers after layoffs during the pandemic.

Sydney Airport last week held a recruitment fair for companies to hire 5,000 needed staff.

Mr Joyce said on Sunday that the airline industry was “rusty” as a result of the hibernation during Covid-19 but he was confident that Qantas would be able to fix its issues within a few weeks.

The airline said it planned to give A$5,000 bonuses to up to 19,000 staff when they sign fresh union contracts after a two-year wage freeze during the pandemic.

Qantas also said on Friday that Mr Gareth Evans, the head of its low-cost arm, Jetstar, would step down from his role in December after 23 years with the group.

Investors and analysts had viewed Mr Evans as one of the top contenders to eventually succeed Mr Joyce, who has led Qantas since 2008 and plans to stay until at least the end of 2023.

Several other potential successors have already left for CEO roles elsewhere, in part because of Mr Joyce’s unusually long tenure.