Qantas issues surprise half-year profit guidance, set to recoup large chunk of FY22 loss
The Qantas share price soared 12% this morning following a profit guidance.
After suffering a $1.86bn loss and untold damage to its global reputation in FY22, Qantas surprised the market today with an upbeat profit guidance.
The airline expects underlying profit before tax of between $1.2bn – $1.3bn in the first half of FY23, which is almost as much as the market was assuming they would make for the full year.
Qantas also expects its net debt to fall to between $3.2 billion and 3.4 billion at 31 December, which is below the bottom of the target range of $3.9 billion.
Meanwhile, the Qantas Loyalty program is on track to reach record earnings in the first half, and is expected to hit its full year EBIT target of $425–$450 million.
It’s been a 180 degrees turnaround for the Flying Kangaroo, which only a few months ago was condemned for failing to uphold its globally-renowned high standards.
The airline had laid off some 2,000 workers and outsourced its ground operations during the Covid restrictions period.
When borders reopened, it was caught napping as passengers complained about lost luggage, flight delays, and sluggish customer service wait times.
Defiant CEO Alan Joyce, who dismissed calls for his resignation, drew the ire of investors after the Board gave him a 15% pay rise.
The airline’s chief executive took home $2.17m in FY22 amid the losses, and could now pocket another $3m in bonus shares which can be sold if Qantas turns a profit by August 2023.
Analysts were also perplexed about Joyce’s decision to buy back $400 million of the company’s shares considering the airline has suffered over a decade of capital underinvestment.
Steve Johnson, chief investment officer at Forager Funds Management, however said the market has been underestimating Qantas’ ability to come back.
“Qantas’ update this morning confirms Forager’s thesis that pent up travel demand is offsetting any consumer weakness,” Johnson said.
“The restructuring and efficiency gains made during Covid have been underestimated by the market.
“We think there is clearly some short-term tailwinds here but that the longer-term company and industry structure is going to be far more sustainable too.”
Qantas expects its international seat capacity to increase from 61% of pre-COVID levels in first half of FY23 to 77% in the second half.
This however will be largely determined by the ability to return additional A380s from storage and required maintenance, as well as the delivery of three new Boeing 787-9 Dreamliners and additional Airbus A321LRs for its Jetstar subsidiary.
Domestically, Qantas expects capacity to be 94% of pre-COVID levels for 1H23, growing to around 100% for the second half.
In terms of customer service, delay time performance has improved while cancellations have fallen from 4% in August to 2.4% in September.
In October so far, only 1.7% of flights have been cancelled, which is better than pre-COVID levels.
Qantas says it will invest a further $200 million for the remainder of FY23 to roster additional crew, train new recruits and invest in key areas such as contact centres.
At the moment, the Qantas share price is sitting around 20% below its all time high.
According to the ABS, overseas arrivals and departures have increased in recent months, but are still way below levels recorded before the pandemic.