The Qantas Airways Limited (ASX: QAN) share price is in focus today after releasing a promising update about FY23.
FY23 is going well for the airline
Qantas revealed that strong travel demand is accelerating, as it recovers from the COVID effects.
Based on forward bookings, current fuel prices and the latest assumptions about the second quarter, Qantas is expecting that underlying profit before tax will be between $1.2 billion to $1.3 billion for the first half of FY23. That compares to the last five halves which saw a cumulative $7 billion of losses.
Net debt is expected to fall to between $3.2 billion to $3.4 billion. That’s below the target of $3.9 billion.
Domestic and international update
Qantas said that domestic travel is strong across all categories. Revenue from business travel is over 100% of pre-COVID levels and leisure revenue has increased to more than 130%.
Yields from international markets are “particularly strong”, but are expected to moderate as Qantas and other airlines increase capacity.
The Qantas loyalty division, which essentially refers to Qantas points, is expecting to report record earnings for the first half. It’s on track to deliver EBIT (EBIT explained) of between $425 million to $450 million.
Commentary on inflation and fuel prices
Talking about the current situation, Qantas said:
The broader operating environment remains complex with high fuel prices and high inflation, as well as higher interest rates impacting on consumer confidence. However, robust demand indicates that people are prioritising spending on travel above other categories, which supports the Group’s ability to fully recover higher fuel costs through fares. Fuel prices are now around 75% higher than pre-COVID, compared with around 60% in August 2022.
Has the performance in airports improved?
Qantas noted that its domestic on-time performance has increased from 67% in August to 69% in September, and October has averaged 75%. The airline has a target of 75%.
Cancellations fell from 4% in August to 2.4% in September. In October, only 1.7% of flights have been cancelled.
Qantas said that “mishandled bags remained low at six per 1,000 passengers in September and into October.”
It will continue to invest in extra resourcing to provide a buffer against the challenges seen earlier in the year. Qantas will roster additional crew, train new recruits and provide overtime in key areas such as contact centres.
However, it also means a “conservative approach to scheduling that means around 20% of the group’s flying capacity will be left in reserve”.
It also said that after a 2-year wage freeze, annual wage increases will be adjusted upwards from “2% to 3%”. That represents an extra $40 million per year before compounding.
Final thoughts on the Qantas share price
An airline is not usually a high-return, compound growth sort of business. But, I do think that Qantas could be a good performer in the shorter-term as investors see it’s back to making profits again.
While it’s not a business I’d add into my own portfolio, I think it could be an underrated opportunity. It could be particularly exciting if it starts paying a dividend again.
