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Why I like Qantas Airways Limited

Qantas Airways Limited (ASX: QAN) is one of those companies that seem to be always getting it right lately. As a brand representing Australia, it is generally well regarded in the airline industry and by many travellers. It is also producing some good results.

Recent Tourism Australia data shows that international tourists to Australia were up 13% in March compared to the same period in the previous year, with an 8% increase year on year. Domestic travel in Australia remains strong growing 14% year on year to December 2017 according to travel search app Skyscanner Australia. A Roy Morgan study found that business air travel growth was down in 2017 to 11% compared to 13% in 2016 with the end of the mining boom and reducing number of FIFO workers.  But, another Roy Morgan study also found that in the last 12 months to December 2017 the proportion of Australians planning to take a holiday has increased to 70%, with an uptick in domestic holiday intention and steady overseas travel.

On the back of an improving resources sector and moderate international capacity growth, Qantas reported $976 million for the first six months of FY18 beating the last record in 2016. The results compared to $852 million in the first half of FY17. The fuel bill for FY18 is likely to be capped at around $3.24 billion up from $3.04 billion in FY17.

Qantas has hedged 81% of fuel costs for the remainder of FY18 and has hedged about 50% of its expected fuel costs for FY19, which will hopefully put the company in good stead for any further price rises. Crude oil prices have reached the highest levels in over three years.

Sydney Airport is another company seeing the benefits of increased airline travel on the back of a recovering domestic economy. But trading on 43x FY19 earnings is a little pricey compared to Qantas’s forward price-earnings-ratio of 10x.

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Motley Fool contributor Rosemary Steinfort owns shares of Qantas Airways Limited. 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 Scott Phillips.

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