5 reasons to buy Qantas Airways Limited shares today

Credit: Joits

The turnaround of Qantas Airways Limited (ASX: QAN) has been one of the most incredible investment stories of the last few years. It has been around two years since the company posted a record $2.8 billion loss and saw its shares trading close to $1.00.

But today is a very different story for the company. To the delight of its shareholders, Qantas recently posted a half-year profit of $688 million and sees its shares hovering close to $3.90.

So is Qantas still a good investment today? I believe it is for the following five reasons:

  1. Oil prices

It’s a well-documented fact that through the years falling oil prices have notably benefited airlines’ bottom lines. Although oil prices have climbed a little recently, I wouldn’t expect oil to go much higher than US$40 per barrel this year. Thus, Qantas should still reap the benefits of low oil prices for some time yet.

  1. Chinese tourism

The rise of Chinese tourism is quite incredible. The number of Chinese arrivals into Australia has doubled in the last five years to over 1 million per year. While this is a huge number, it still only represents around 1% of total Chinese outbound tourism. The company’s alliance with China Eastern should prove to be a great one in the years ahead. Another company which could benefit from this is Sydney Airport Holdings Ltd (ASX: SYD).

  1. Jetstar’s Asia growth

Jetstar has added over 50 new Asian routes in the last 18 months, leading to passenger numbers in Asia growing by 36% to 7.9 million. This helped Jetstar produce the best performance in its history recently. Its underlying half-year profit of $262 million was a better performance that any of its previous full-year results.

  1. Qantas International

18 months ago the company’s international segment made a $500 million loss. Since then there has been a marked improvement with the segment producing a $270 million underlying half-year profit. I believe the weaker Australian dollar is making Australia a very attractive destination for tourists, and I expect to see this strong performance sustained for the next few years.

  1. Valuation

Its price-to-earnings ratio may appear to be on the low side, but it is consistent with airlines worldwide. The current average trailing price-to-earnings ratio in the United States’ airline industry is just under 7, indicating Qantas is fairly priced now. But with such strong earnings growth ahead, I would expect to see the Qantas share price appreciate in line with its earnings growth over the next 12 months.

Foolish takeaway

In my opinion Qantas is a much better investment than its industry rivals Virgin Australia Holdings Ltd (ASX: VAH) and Regional Express Holdings Ltd (ASX: REX). The massive gains of the last two years may have gone now, but I still believe Qantas will provide shareholders with market-beating returns over the next couple of years.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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