The Qantas Airways Limited (ASX: QAN) share price has flown higher by around 6% after revealing its FY22 report and the outlook.
Qantas is Australia’s main airline. After going through a lot of difficulty during COVID, it survived and is now seeing a huge surge in demand.
Qantas FY22 result
These are some of the main highlights from the airline’s FY22 report:
- Compared to FY19, total group revenue was down 49%
- Compared to FY19, total group expenses were down 38%
- Underlying EBITDA (EBITDA explained) of $281 million
- Second half EBITDA of $526 million
- Underlying loss before tax of $1.86 billion
- Statutory loss before tax of $1.19 billion
- Positive statutory operating cashflow of $2.67 billion
- Net debt dropped to $4 billion, below target range of $4.2 billion to $5.2 billion. It had cash of $3.3 billion.
- On-market share buyback of $400 million announced
There are quite a few different numbers, so let’s look at some of those.
The difference between the underlying loss and statutory loss before tax largely reflects the $686 million net gain on sale of surplus land, which helped reduce COVID-related debt.
Qantas pointed out that the first three quarters of the financial year had border closures and lockdowns. But, the last quarter saw demand roar back.
The group’s flying levels for the year averaged at 33% of pre-COVID levels but finished at 68%.
Profit breakdown
Domestic
Total domestic flying averaged 63% of pre-COVID levels for the year and reached 103% by 30 June 2022.
It generated positive underlying EBIT for the fourth quarter, but long periods of low flying activity combined with restart costs resulted in a full year underlying EBIT loss of $1.1 billion.
Across Qantas and Jetstar, revenue intake from leisure bookings in the fourth quarter were approximately 125% of pre-COVID levels. Business travel revenue in the fourth quarter was around 90% of pre-COVID levels.
International and freight
Qantas’ international passengers business saw “heavy losses”, but this was offset by a record performance by Qantas Freight, which benefited from high yields due to a continued shortage of cargo space globally, but also from the ongoing shift to e-commerce domestically.
The Qantas international and freight division saw an underlying EBIT loss of $238 million and an underlying EBITDA profit of $448 million.
International capacity averaged just 17% of pre-COVID levels for the year, but rose to 49% by 30 June. It has resumed flying to 19 ports and announced eight new destinations, including Rome, Seoul and Delhi.
Qantas said that, globally, airlines are constrained by aircraft and labour availability in returning to pre-COVID capacity levels despite high levels of demand. While temporary, this is driving “strong yields” across its international flying, which is offsetting the significant rise in the cost of jet fuel.
Qantas Loyalty
The Qantas loyalty division saw revenue rise by 36% to $1.33 billion. Underlying EBIT increased 7% year on year.
During the year, agreements were renewed with its major partners. New partnerships were also launched. Qantas business money was launched as well, and will expand further in FY23.
Frequent flyer members grew to 14.1 million in FY22, reflecting a total increase of around 1 million since the start of the pandemic.
Outlook and thoughts on the Qantas share price
Qantas said that it has entered into FY23 with its balance sheet repair “effectively complete”. There is strong levels of demand there is a “clear path to improving its COVID-related operational challenges”.
The recovery plan is expected to be completed in FY23, delivering $1 billion of annual cost reductions. There is also a focus on offsetting CPI inflation between FY19 to FY23 through additional cost and revenue initiatives.
It’s expecting the FY23 fuel cost to be $5 billion, driven by a 60% increase in fuel prices compared to FY19.
The Qantas RASK (revenue per available seat kilometre) performance is expected to fully recover increased fuel prices as well as temporary unit cost increases associated with addressing operational challenges.
Group domestic capacity is being reduced by another 10% in response to the fuel costs and operational challenges. Some capacity may be restored once operational resilience is improved.
In the first half of FY23, capacity is expected to be 95% of pre-COVID levels, in the second half it’s expected to rise to 106%.
International capacity is expected to be 65% of pre-COVID capacity in the first half of 84% in the second half.
Qantas loyalty underlying EBIT is expected to increase to $425 million to $450 million in FY23.
With expectations of strong demand, I think the Qantas share price looks like a long-term opportunity as it recovers. Changes in the oil price could also help short-term sentiment.
