What will the Qantas A321XLRs mean for the group? Hint: Investors should be excited but also cautious!

The first of Qantas A321XLRs is now taking passenger flights – the first flight occurred today (September 25) and it will be the first of many!

Plenty has been (and will be) written about what it means for passengers. But we thought we’d focus on what it will mean for investors in Qantas.

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The fine details of Qantas A321XLRs

Qantas taken delivery of the first 2 of them and will initially fly them between Sydney and Melbourne and Sydney and Perth. Obviously this will ramp up as more aircraft are delivered. This is part of Qantas’ Project Winton which has been about overhauling its domestic fleet and has involved the A220s – Qantas now has 7 of them an another 22 firm orders. This enabled the Red Roo to phase out 717s and it will retire the oldest 737s (i.e. those delivered in 2001-02).

Qantas’ A321XLR order initially consisted of 20 but now sits at 48 in total along with further options and purchase rights. Moreover, the Qantas Group already has 21 A321LRs for Jetstar and has A321XLRs on order for Jetstar. Already, these have allowed Jetstar to free up the 11 787s to be used on other routes, and also for cabin refurbishment.

For instance, rather than 1 787 from Sydney to Bali per day, it now has 2 daily flights with A321s. New routes have been launched too, including between Perth and Bangkok for instance.

Some complain that they are inadequate for the 6 hour flight to Bali, given limited toilets and 3-3 seating, but enough people have been doing something different with their wallet (i.e. paying up) that it has worked.

Why the A321XLRs will be good for Qantas (in the long term)

As was shown with Jetstar, it will enable Qantas to launch new flights – both new routes altogether to routes otherwise not possible and can increase frequency to existing destinations. Because the aircraft is smaller than many wide‑bodies, the risk of flying with many empty seats is lower, improving profitability on lower demand segments.

And it can do so with lower fuel burn per seat compared to the older aircraft. Due to the new enterprise bargaining agreements and type commonality amongst pilots (i.e. A220 and A321 pilots will be able to fly both aircraft) will mean lower crew costs.

We envision this could be realised in Qantas’ bottom line. There is precedent with this, particularly amongst European airlines. Jett2 in the UK, KLM and Delta are 3 airlines that credited the A321 to improvements. Even if they did not quantify a figure on their profit, it is inevitable that cutting fuel costs generally will help. KLM for instance, claimed 21% more fuel efficiency, and Jet2 claimed there were lower operating costs per ASK (avaliable-seat-kilometre).

The (short-term) downside

Obviously aircraft do not come cheap. Even though airlines get discounts, buying doz still is not cheap. Many estimates have been made for Qantas’ total capex bill including these aircraft and the new international aircraft (24 A350s – 12 of which will be dedicated for Project Sunrise flights – and another 12 787s), but they all run into the billions. Also, did you know Qantas has operated dozens of ‘training flights’ to train up pilots and crews? This has inevitably cost a lot of fuel.

And this is on top of general maintenance for all the existing aircraft in its fleet (opex). Now of course, Qantas hopes this will pay for itself over time, and it will be able to spread payment over a number of years. Specifically, it reported net capex of A$3.9bn, this included 20 of the A321XLRs. I

Qantas has not provided any specific guidance for any years beyond FY26 but estimates another $3.8-3.9bn in that year (albeit concentrated in the second half of the year). Of course it could run higher and there is also the prospect of delays.

Conclusion

After a decade or two with a minimalist approach to capex under Alan Joyce, Qantas is investing heavily in new aircraft and the launch of the A321XLR shows this. There will be benefits in the years ahead, but also costs and investors should be aware of both of them.