I think the Qantas Airways Limited (ASX: QAN) share price may be a turnaround opportunity. Here’s why:
Recovery of the domestic market
Both the federal government and Qantas are expecting that the domestic travel market is going to recover strongly in the coming months and into FY22.
The federal government has announced a plan to help the airline industry with subsidised plane tickets that encourages people to travel to regional destinations like Cairns, the Gold Coast and Kangaroo Island. 800,000 domestic travellers who go to destinations that are normally supported by international tourists will benefit. Qantas is set to be the biggest beneficiary as it’s the biggest airline in Australia, and Virgin is now a much smaller competitor.
Qantas has been working hard on reducing its costs, so when domestic travel returns to (a new) normal then it will probably be more profitable per flight than before. A lot of those cost reductions has been job-related. Qantas recently admitted there could be more job cuts on the cards.
There might be a lot of pent up demand for a holiday, though we’ll have to see if that translates into activity and profit for Qantas.
Qantas has said that its domestic business is making positive underlying cashflow and it made positive EBITDA (EBITDA explained) of $71 million in the first half of FY21.
International recovery?
The federal government has provided additional support for airlines like Qantas to ensure they’re ready for international borders to reopen.
I think Qantas could be a decent opportunity without the international travel, but at some point international borders will reopen.
Without trying to be too bias, I reckon a lot of global travellers are looking forward to visit Australia one day. This is another potential step up of earnings in the future.
Better plane efficiencies
Qantas will benefit in the future from lower operating costs as planes get more efficient with fuel. Before COVID-19, airlines were actually doing quite well with profit generation.
There’s also the opportunity for Qantas to capture more of the international freight market when it gets more passenger planes back into the air.
