Qantas Airways Limited reports record profits, time to buy?

Credit: Joits

Unsurprisingly the share price of Qantas Airways Limited (ASX: QAN) has edged higher today following the announcement that the flag carrier airline of Australia posted record full year statutory profit after tax of $1.03 billion, up a massive 85% on its $557 million profit result a year ago.

Although its net freight revenue dropped 9% to $850 million due to difficult global cargo markets, this was offset by a 5% rise in passengers carried causing net passenger revenue to climb 3% to $13,961 million. Other revenue also boosted the top line and jumped 9% to $1,389 million.

The airline’s overall profitability was given a lift by savings in fuel costs which dropped from $3.9 billion in FY 2015 to just over $3.2 billion in FY 2016. As a percentage of total revenue, fuel costs dropped from 24.7% to just 20% this year.

This increased profitability led to its Jetstar brand posting a whopping 97% increase in earnings before interest and tax to $452 million. Qantas International wasn’t far behind with a 92% increase to $512 million.

Despite Qantas Domestic suffering a sharp decline in demand from resources markets, it still posted a strong 20% increase in earnings to $578 million. This put the company in a position to be able to also announce a buyback of up to $366 million of its shares. The company also announced plans to eventually live stream cricket and install wireless internet onto its Australian flights.

Clearly the company has benefited greatly from increasing levels of international tourism and low fuel costs. But is it enough to make an investment today?

Airlines such as Qantas, Virgin Australia Holdings Ltd (ASX: VAH), and AIR N.Z. FPO NZ (ASX: AIZ) all stand to continue to benefit if these tailwinds continue and Qantas would easily be my pick of the lot.

But it is worth remembering that if fuel costs start to rise, profitability will be challenged and the share price could decline as a result. Because of this I would avoid an investment in Qantas for now.

Lastly, if airlines are not for you then I would recommend taking a look at these three new breed blue chip shares. Each pays a growing fully franked dividend and could bolt higher in the next few months in my opinion.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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