Qantas Airways Limited (ASX: QAN) shares have had an incredible run over the last 18 months. After hitting a low of 96 cents per share a little over a year ago following the announcement of a massive loss and dismal outlook, CEO Alan Joyce has been able to guide the company to a remarkable operational comeback.
Qantas reported a net loss after tax of over $500 million in the 2014 financial year and such has been the turnaround, Qantas is now expecting an underlying profit before tax of between $300 and $350 million for the first half of the 2015 financial year.
Strong Tailwinds
The main reason for the turnaround has been:
1.Conceding the local capacity war with Virgin Australia Holdings Ltd (ASX: VAH)
2. A massive cost reduction program
3. The dramatic fall in the oil price
4. Improved international yields
5. Slowly improving consumer willingness to spend
Best in 5 Years
If Qantas can achieve its forecast profit for the first half, it will be its best result since the first half of 2010.
Tough Industry
The biggest problem for Qantas going forward is the industry it operates in. Warren Buffett once proclaimed that airlines were one of the worst industries to invest in, and Richard Branson is famously quoted saying that the easiest way to become a millionaire is to start as a billionaire and buy an airline.
The airline industry is simple for competitors to enter, highly price-driven, volatile, and often impacted by external factors – like consumer spending, interest rates or terrorist attacks.
Some Qantas shareholders may be sitting on a return of over 150% based on today's price and could be wise to sell soon and lock in some profits. Typically I would look at analyst estimates to gauge earnings this year and next, however their estimates are all over the place so it's difficult to accurately gauge what the shares are worth.
