In early trade today shares of Qantas Airways Limited (ASX: QAN) flew 5% higher to $3.51, a price level not seen since September 2008.
Over the past six months shares of the flying kangaroo have been on a stellar run, climbing 88% versus a 37% return from rival AIR N.Z. FPO NZ (ASX: AIZ) and 29% from Virgin Australia Holdings Ltd (ASX: VAH).
During its investor presentations today, Qantas said lower fuel costs, improved performance on domestic routes and huge cost reductions will enable the airliner to pay down $1 billion of debt by June 30.
The company went so far as to say the expectation of a return to an "optimum capital structure" means the board is "well placed" to "consider shareholder returns."
It said the timing and quantum of returns is dependent on prevailing conditions, operations and future outlook. It intends to update the market when it releases its financial year (FY) 2015 results in August.
In addition to the cost cutting and debt payments, Qantas says it is targeting a huge $2 billion of transformational benefits by FY17.
Fuel costs, which stood at a huge $4.5 billion in FY14, are forecast to drop to $3.95 billion (worst case scenario) in FY15 and remain flat throughout FY16 thanks to its current hedging program.
Are Qantas shares a bargain?
Up 172% in just 12 months, investors have jumped on Qantas shares as the oil price plunged, the cricket world cup boosted fares and efficiencies from prior cost-cutting initiatives dropped to the bottom line (profit).
However although Qantas has easily outperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the past 24 months, the recent share price gains should serve as a reminder of how dependent Qantas is upon on external factors such as fuel prices and competition to remain profitable.
Indeed, whilst short-term investors may see value in Qantas shares today, personally, as a long-term (five years of more) investor, I find it very difficult to justify a purchase of any airline stock at today's prices.
