Qantas Lifts Profit Forecast for Christmas Season

This morning, Australian aerial icon Qantas Airways [ASX:QAN] shared improved profit guidance for the half year, uplifted by returning air travel demand ahead of the Christmas travel season.

The QAN share price was rising well above 5% earlier this morning, a share for the airline worth $6.18 at the time of writing.

As the COVID-19 situation continues to evolve, more and more holidaymakers appear ready to prioritise domestic travel above other forms of leisure, enabling the airline to crank up its pre-tax profit forecast to $1.45 billion to 30 December.

Year-to-date, the airline’s stock has risen more than 23%, and it is currently up 18% in its sector, as measured over the past 12 months.

Source: TradingView

Qantas’ upgraded profit forecast rises on demand

Today, the travel icon revealed a significant uplift in forecasted profits and improved debts ahead of the busy end-of-year holiday season, especially with demand already climbing at an encouraging rate over the last few weeks.

On the advancing figures, the air travel company has decided to bump up its previous underlying profit before tax guidance of $1.35 billion to $1.45 billion.

Compared with October’s calculations, this is a $150 million increase to the air carrier’s profit range. In its update earlier this morning, Qantas stated:

‘Consumers continue to put a high priority on travel ahead of other spending categories and there are signs that limits on international capacity are driving more domestic leisure demand, benefiting Australian tourism.’

Qantas has also calculated an expected net debt drop of around $2.3 to $2.5 billion by the end of the year, representing about $900 million since the group’s previous update.

This is in part due to the healthy rise in revenue through increasing demand, but also from QAN’s deferral of $200 million to be moved to the second half’s expenditure.

However, there are still segments the travel service must continue to be vigilant about with rising inflation having put increasing pressure on operating costs, the biggest of them all being the ongoing issue of increased fuel costs.

For a big airline such as Qantas, this is a huge issue. With fuel prices up 30% since FY19, the company expects around $5 billion to be spent on fuel for FY23 despite long-haul flights capped at 30%. This is a record high for the air travel group.

Although, Qantas noted an uplift in operational performance, and has put $200 million into rebuilding its workforce, as well as additional aircraft reserves.

With demand picking up fast, the airline expects these investments to assist in keeping its levels manageable, even as new COVID strains appear over the Christmas period.

QAN make room for improved conditions

Customers have now redeemed around 60% of COVID-related travel credits, equating to $2 billion.

Qantas intends to encourage remaining credits to be used over the coming year, stating:

‘While capacity is constrained, over a million sale fares were launched in October and further sale activity is planned in the weeks ahead…

‘The Group is adding capacity as quickly as possible in the second half of the year while maintaining operational reliability.’

Qantas’ $400 million share buyback is now 76% complete and the group’s board is now considering shareholder returns for February.

The company plans to share its recovery with employees via a $5,000 payment boost and 1,000 shares.

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Regards,

Mahlia Stewart,

For The Daily Reckoning Australia