Qantas (ASX: QAN) is rebounding aggressively into 2023

Nick Sundich Nick Sundich, August 25, 2022

Qantas (ASX: QAN) released its FY22 results this morning and it showed the airline is recovering from COVID very nicely, but the journey isn’t complete yet. 

As expected, Australia’s flag carrier recorded a heavy post-tax loss, but now has nearly all of its planes back in the sky, a strongly performing Qantas Loyalty Division and is repairing its balance sheet. It also announced a peculiar new route. 

 

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Qantas returning to positive territory 

With FY22 including the Delta and Omicron waves of COVID-19, Qantas recorded its third straight statutory loss before tax of $1.19bn, or $1.86bn on an underlying basis. Its underlying EBITDA was positive by $281m, slightly ahead of consensus and mostly achieved in the second half of the year. Its statutory operating cash flow was $2.67bn and its revenue jumped by 54% to $9.1bn, nearly 5% ahead of consensus.  

Net debt declined to $3.9bn, below the $4.2-$5.2bn target range and it anticipates $1bn in savings thanks to the recovery plan implemented at the height of the pandemic. 

 

And not just passenger flights 

Strongly performing were its freight division, thanks to the eCommerce boom, and its loyalty division that hosts its Frequent Flyer program. It hosts 14.1m members and recorded $1.33bn in revenue, up 36%. 

Although this was not included in its results, we observe that over 1bn points were spent by Qantas’ loyalty members on Monday when Qantas released a significant number of award seats, depicting that although members have some gripes, they are engaging with the program. 

 

A positive FY23 awaits 

FY23 consensus estimates predict $16.94bn in revenue, up 86%, and $2.97bn in EBITDA, representing a roughly 10-fold gain. The company did not provide any group revenue, EBITDA or NPAT guidance, but expects its Loyalty EBIT to increase to $425-$450m.  

And it expects international capacity to reach 84% of pre-COVID levels and domestic capacity 106% of pre-COVID levels. Investors are evidently optimistic judging by Qantas’ 9% share price rise this morning.

 

Qantas (ASX: QAN) is rebounding aggressively into 2023 1

Qantas (ASX:QAN) share price chart (Graph: TradingView)

 

A new, peculiar route 

The company, as it typically does at reporting season, announced a number of lounge upgrades, including Auckland and Adelaide. But the most intriguing announcement was a new Sydney-Auckland-New York flight from June next year, going head-to-head with Air New Zealand on that route.  

Given Air New Zealand will have launched the route already and seeing a lack of 787s, we cannot understand why the Red Roo doesn’t just wait until the A350s arrive and it could operate non-stop flights from Sydney. It will be interesting to see if this flight lasts beyond Project Sunrise. 

 

Overall good outlook 

Overall, we think the FY22 results release reads pretty well. QAN is on the way back and 2HY and Q4 data shows the recovery trajectory is actually pretty steep. On top of that, the operational issues should be over by the end of September so travellers will be able to enjoy a much better service going forward. 

 

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