The Qantas Airways Limited (ASX: QAN) share price has been going higher and higher. Can it keep going?
What has the airline done recently?
As an airline, Qantas is obviously one of the most COVID-19-affected businesses on the ASX. Only a small fraction of people are flying domestically and there are almost no international flights, apart from returning Aussies.
Despite that difficult situation, the Qantas share price has risen by 71% since the end of July 2020. That was when Victoria was at the worst of its second wave. Qantas did a capital raising at the end of June to make sure its balance sheet could survive through whatever happened over the coming months and the rest of FY21.
The company said a few months ago that it’s expecting a significant underlying loss in FY21.
But are things better than they seem?
Qantas has already cut costs by a large amount. In the last quarter of FY20 it managed to reduce costs by 75%, though revenue fell further. I think that Qantas is likely to continue its leaner operating cost model so when its revenue does return then it could actually be more profitable than it was before.
Another positive factor for Qantas is that its main competitor, Virgin, is now going to be quite a bit smaller. That gives Qantas more market share.
Victoria seems to have eliminated COVID-19 entirely from the state, which means that flights between Sydney and Melbourne have resumed. It was previously one of the busiest routes in the world, so this could be a very important change.
International borders could start opening with a limited number of countries. New Zealand residents can already come here. Other low-risk Asian locations could be next like Singapore or Taiwan.
Qantas is looking to lower costs to co-locate all of its facilities in one place, which could lower costs further. Some front runners are Melbourne and somewhere near the new Western Sydney Airport.
Summary thoughts
There is the potential for the domestic market to have largely recovered to pre-COVID-19 levels by next year. That would be a huge boost for Qantas and could make the current share price still good value. There may be better growth potential with something like Webjet Limited (ASX: WEB) which had better profit margins, but Qantas could still do well.
But there are other ASX growth shares I prefer even more such as Pushpay Holdings Ltd (ASX: PPH). I think there’s a long shift to digital payments regardless of COVID-19.
