A global UBS survey has revealed as expected, an increase in travel spending for 2018, with Qantas Airways Limited (ASX:QAN), and Virgin Australia Holdings Ltd (ASX:VAH) positioned to do better than other airlines.
Australia is the only country in the survey with lower volume although total spend is up. Government data reveals that domestic travel is the most expensive it has been for nine years, so lower future price expansion is expected, as well as a relatively soft consumer environment.
UBS maintains its Neutral rating (after downgrading from a buy recently) for Qantas with a price target of $6.50. The current share price is $6.26, and forward price-earnings-ratio (PER) is 10x. Qantas can pass on fuel price rises as well as maintain its premium brand, but going into FY19 higher fuel costs may be harder to recover.
Virgin has a sell rating due to limited free cashflow generation and the FY19 high PER of 24x.
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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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