Qantas Upgrades Profit Forecast On Back of Strong Travel Demand

Australia’s Qantas Airways Ltd raised its first-half pre-tax profit outlook on Wednesday on strong travel demand, with limits on international capacity helping boost domestic tourism, sending its shares to more than a two-year high.

In its second profit upgrade in six weeks, the carrier expects first-half underlying profit before tax between A$1.35 billion and A$1.45 billion ($898.02 million and $964.54 million), above prior expectation of between A$1.2 billion and A$1.3 billion ($800 million and $870 milion).

That is above UBS forecast of A$1.2 billion, and is a turnaround from last year’s underlying loss before tax of A$1.28 billion.

Shares of the airline jumped as much as 6.1 percent to A$6.23 ($4.2), their highest level since February 24, 2020, and were the second biggest gainer in the ASX 200 benchmark index.

“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 said.

Analysts at UBS in a note said “strong demand plus Qantas’ strategy to focus on profitability rather than growth will support earnings momentum into financial year 2024.”

“Domestically, the market structure means rational capacity and high cost pass-through; internationally, we expect international airlines to reinstate more capacity, however global constraints on growth, especially fleet and labor, will likely persist for years.”

Qantas now also expects its net debt to be between A$2.3 billion ($1.53 billion) and A$2.5 billion ($1.66 billion) by 2022 end, A$900 million ($600 million) lower than its previous estimate.

“Low levels of net debt put the board in a position to consider future shareholder returns in February 2023,” the airline said, adding 76 percent of the A$400 million ($266 million) share buyback program announced in August has been completed.

UBS expects Qantas to announce additional share buy-backs of A$300 million ($200 million) in second-half of fiscal 2023 and A$500 million ($333 million) in fiscal 2024.

(Reporting by Sameer Manekar in Bengaluru; Editing by Krishna Chandra Eluri and Sriraj Kalluvila)

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