The Qantas Airways Limited (ASX: QAN) share price is facing the market’s judgement after the FY23 result release and news of ordering more aircraft.
Qantas share price
FY23 result
Here are some of the highlights for the 12 months to June 2023:
- Revenue up 117% to $19.8 billion
- Underlying profit before tax improved $4.3 billion to $2.47 billion
- Statutory profit before tax increased $3.66 billion to $2.47 billion
- Statutory profit after tax increased $2.6 billion to $1.74 billion
- Statutory profit / earnings per share (EPS) rose $1.42 to $0.96
- Operating cash flow rose 90% to $5.08 billion
Qantas said that its operational performance improved during the year, with Qantas having the best on-time performance of the major domestic airlines for 11 months out of 12. Customer satisfaction, while not back to pre-COVID levels, has improved in line with operational performance.
Capacity and division commentary
The business said that the normalising o international capacity and the “unwinding of inefficiencies” from the return to flying will “help put downward pressure on fares” and strengthen financial performance.
Group domestic operations increased flying to 103% of pre-COVID levels by the end of the FY23 second half, with strong demand from leisure and business travel. This helped deliver underlying EBIT (EBIT explained) of $1.5 billion. The strength of this has supported the Qantas share price.
International operations grew capacity to 81% of pre-COVID levels over the period.
Qantas Freight continues to make a “significant contribution”, even as market ‘yields’ normalise, delivering an additional $150 million in “structural earnings growth” which is expected to be maintained due to the permanent increase in e-commerce and ‘efficiencies’ from fleet renewal.
The Qantas Loyalty division saw growth in several parts of the portfolio, delivering record EBIT of $451 million.
Fares peaked in the second quarter of FY23 and fell around 12% in the second half. In inflation-adjusted terms, domestic fares are 4% higher than pre-COVID levels and international fares are 10%.
Share buyback
The Qantas board decided to approve yet another buyback
today, this time for $500 million, which will commence in September 2023. This is after $1 billion of share buybacks during FY23. This can be a boost for the Qantas share price because it’s sharing the value of Qantas through fewer shares.
New aircraft ordered
Qantas said that it has ordered 24 widebody aircraft, being 12 Boeing 787s and 12 Airbus A350s.
Deliveries are going to start in FY27 and continue into the next decade. These aircraft will replace the bulk of its current A330 fleet, with purchase right options stretching out until at least FY37, to provide flexibility for future growth, and replace its A380 fleet.
As part of the new order, it will partner with Airbus and Boeing to access up to 500 million litres of sustainable aviation fuel (SAF) per annum from 2028, including from the US. This represents up to 90% of the SAF required to reach the interim target of 10% of its total fuel needs.
Outlook for the Qantas share price
The total fuel bill for the first half of FY24 is expected to be over $2.6 billion.
Group domestic capacity is expected to remain above pre-COVID levels throughout FY24. International capacity will continue to recover, with it on track to recover to 100% of pre-COVID levels in the FY24 second half.
Qantas Loyalty said it’s on track to deliver its FY24 EBIT target of $500 million to $600 million, six months earlier than expected. Underlying EBIT of over $500 million is expected for the 2023 calendar year.
The airline is also expecting around $400 million of ‘transitory’ costs in FY23 to unwind in FY24, while continued ‘transformation’ of more than $300 million in FY24 is expected to offset CPI inflation.
Net debt is expected to increase in FY24, but will remain at the bottom of the target range, though the range is expected to increase as invested capital rebuilds.
Final thoughts on the Qantas share price
With fares expected to reduce, this could be the best profitability that Qantas sees. It’s good to see that the ASX travel share is investing in fleet renewal. The low earnings multiple and ongoing share buyback could make it seem cheap, but travel demand may not stay strong forever. I wouldn’t sell or buy at the current level.
