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:
- 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.
- 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).
- 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.
- 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.
- 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.
