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Date : 17/07/2023

Qantas Airways (ASX: QAN) Takes Off: An Impressive Fiscal Year 2023

As one reflects on the financial landscape of 2023, the standout performance of Qantas Airways Limited (ASX: QAN) cannot be overlooked. Australia’s flagship carrier outpaced the broader S&P/ASX 200 Index (ASX: XJO) with a soaring 40% rise in its share price. The fiscal year was marked by a gradual climb in the first nine months, subsequently plateauing albeit with modest fluctuations.

This analysis aims to understand the tailwinds that pushed Qantas to these new heights and what this implies for the future.

Evaluating QAN Share Price Performance

The performance of a share price is heavily influenced by the profits investors anticipate. According to an estimate by Commsec, by the end of FY23, Qantas shares were valued at less than 10 times the estimated earnings for the year.

This assessment provides a promising outlook for Qantas shareholders. The airline’s remarkable recovery, bolstered by solid travel demand and strategic share buybacks, illustrates the firm’s resilience in a post-COVID world and makes a compelling case for investor confidence in the year ahead.

Qantas Airways Share Target

QAN: The Resurgence of Travel Demand

Central to Qantas’ spectacular performance was the robust resurgence of travel demand, especially in the domestic sphere.

Soaring Above Pre-Covid Levels: The Power of Domestic Travel

In October 2022, Qantas reported a robust increase in domestic travel demand. The leisure sector was particularly notable, reaching 130% of pre-COVID levels. This positive momentum projected an optimistic outlook for Qantas, leading the company to predict an underlying net profit before tax (NPBT) between $1.2 billion and $1.3 billion for the first half of FY23.

Adjusted Projections: Increased Profit Expectations

By November 2022, Qantas revised its NPBT projection upward by $150 million, citing sustained travel demand, particularly in the domestic leisure segment, driven by constraints in international capacity.

Climbing Altitude: Strong Financial Performance

Qantas’ strong performance on its domestic routes bolstered the company’s financial position, setting a high benchmark for its first-half results.

Exceeding Expectations: Stellar First-Half Performance

The half-year results for FY23 surpassed the revised expectations, with Qantas posting an NPBT of $1.43 billion. This result, attributed to consistent demand, improved yields, and effective cost management, placed Qantas firmly on an upward trajectory.

Maintaining Course: A Positive Outlook for the Second Half

As FY23 progressed, Qantas projected a rise in domestic and international capacity for the second half. Although the increase in capacity was expected to moderate fares, they remained significantly above pre-pandemic levels. By May, buoyed by ongoing strong travel demand, Qantas nudged its NPBT expectations to between $2.425 billion and $2.475 billion.

Clear Skies: Share Buyback Program

Alongside robust travel demand, Qantas’ strategic share buyback program also played a critical role in bolstering the share price.

Initiating the Programme: The Early Phases

Qantas’ share buyback journey began early in FY23 with announcing a buyback program worth up to $400 million. Qantas’ relatively low net debt level made considering such a capital allocation possible.

Mid-Flight Adjustments: Scaling Up the Programme

Throughout the year, Qantas maintained its commitment to the buyback program. Following the announcement of an additional $500 million buyback in the HY23 results, the company further augmented this amount by $100 million in May. This move increased market demand for Qantas shares. It strengthened the share price while enhancing key financial indicators like earnings per share (EPS) and return on equity (ROE).

Conclusion:

The fiscal year of 2023 was a testament to Qantas’ resilience and strategic agility. Its impressive performance, underscored by a 40% rise in share price, was fueled by a remarkable resurgence in travel demand and a meticulously executed share buyback program.

As we prepare for the fiscal year 2024, Qantas presents a compelling case of recovery and growth in the post-pandemic era. Its robust financial health and favourable share price valuations position the airline strongly for continued success.

The FY23 performance of Qantas is a testament to the potential of the aviation sector’s recovery, demonstrating that even in challenging times, strategic foresight coupled with operational efficiency can lead to soaring heights. Qantas is ready to navigate the post-pandemic skies and is set to lead the fleet.

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