MENU

Here’s why Qantas Airways Limited soared 7% today

Australia’s largest airline Qantas Airways Limited (ASX: QAN) has seen its share price rocket up 7.3% to $1.61 today, and 21% over the past five days.

There are a number of factors that have driven the share price higher, but before investors get excited, much of it is likely to be short-lived (more on that below).

Rival Virgin Australia Holdings Ltd (ASX: VAH) chairman Neil Chatfield has announced that he is stepping down from the board, as soon as the company can find a replacement. Mr Chatfield has held the role since June 2007, and the incoming chairman will need to manage four high-profile chief executives and a former deputy prime minister on its board. It’s likely that investors see Mr Chatfield’s departure as a negative for Virgin, and a positive for Qantas.

At Friday’s annual general meeting, CEO Alan Joyce reported the airline had returned to profitability in the first quarter, and is heading for a profit result this financial year. That’s after reporting a statutory loss of $2.8 billion last year. But the Flying Kangaroo has plenty to do. As just one example, morale is reported to be at an all-time low, with around 5,000 workers expected to lose their jobs over time.

The demise of the carbon tax, and lower costs and depreciation charges are expected to boost returns, while the recent fall in oil prices should prove to be a major kicker to the airline’s full year profit. Oil prices have fallen more than 20% in recent months, thanks to expanding supply, but OPEC ministers are set to meet next month, and may well decrease production to drive the oil price back to around US$100 a barrel.

Investment bank UBS has upgraded Qantas to a ‘Buy’ based on lower oil prices, and in the early stages of a significant turnaround. The broker says the lower Australian dollar should also help as foreign competitors tend to reduce capacity or raise prices to offset the negative currency impact.

But many of those factors could prove to be temporary, and Qantas is equally likely to lurch into another crisis caused by something else unforseen so far.

Foolish investors would be wise to steer clear of Qantas, and airlines in general. They are poor businesses and management have to run very hard just to stand still. Luckily there are plenty of more ASX fish to fry, with better prospects and less risk.

The Motley Fool's #1 dividend pick is one of those fish...

Don't miss it! Top Motley Fool investment advisor Scott Phillips has just named his #1 dividend-paying stock for 2014-2015. With solid growth prospects and a fat, fully franked dividend, this ASX stock could be a huge winner for your portfolio. Discover the name and code FREE by clicking here now. Simply enter your email address, and we'll send you the FREE report right away!

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned and is unlikely to ever. You can follow Mike on Twitter @TMFKinga

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.