* Will reach 68% of pre-COVID capacity this month
* Airline to be net free cash flow positive in H2
* International fleet remains grounded until at least July 2021 (Recasts, adds CEO comments, details on vaccine, travel bubbles)
By Jamie Freed
SYDNEY, Dec 3 (Reuters) - Qantas Airways Ltd QAN.AX said on Thursday its outlook had improved significantly because Australia had reopened its state borders, with rising domestic capacity allowing the airline to start the process of repairing its pandemic-hit balance sheet.
Domestic capacity, which had been running at about 40% of pre-pandemic levels, will reach 68% of normal this month, rising to nearly 80% of normal in the March quarter, the airline said.
Qantas expects to post a substantial bottom line loss for the financial year ending June 30, 2021.
However, the airline said it would be close to breaking even at the underlying earnings before interest, tax, depreciation and amortisation level in the first half and net free cash flow positive excluding redundancy payments in the second half.
"The outlook is a lot more positive than it was a month ago," Qantas Chief Executive Alan Joyce told reporters. "It is great to see more of our aircraft back in the air along with more of our people working. We are optimistic it will keep getting better."
The airline has been lifting domestic capacity as Australian states reopen their borders to each other at a time when there have been very few coronavirus cases in the community in recent weeks.
Qantas had said it expected to reach about 60% of pre-COVID domestic capacity by Christmas, before Western Australia this week announced it would open borders to the most populous states, New South Wales and Victoria.
Smaller rival Virgin Australia has forecast it will return to 60% of pre-COVID domestic capacity by January, while Regional Express Holdings Ltd REX.AX is planning to flights on the highly competitive Sydney-Melbourne route in March.
Qantas' international fleet remains grounded until at least next July and the airline has flagged it will require international passengers to receive a COVID-19 vaccine in order to travel. will always put safety ahead of popularity but it seems the vast majority of our customers agree with us," Joyce said of the requirement, which would allow for limited exceptions on medical grounds.
He said 87% of customers said they would take a COVID vaccine if it were required to travel internationally.
The Australian government has indicated travellers would need to be vaccinated or to quarantine on arrival and there are only limited hotel quarantine spaces available.
Joyce said it was possible vaccinations would not be needed for travel to New Zealand because of low cases numbers, adding that the rollout of vaccines might occur before governments around the region agreed on quarantine-free travel bubbles.
Qantas expects it will take years for international travel to fully recover, with the airline carrying the overhead for billions of dollars of aircraft in the meantime, he said.
The airline has cut around 8,500 jobs, or nearly 30% of its workforce, since the pandemic hit and a further 13,500 staff are stood down receiving government benefits.