The Qantas Airways Limited (ASX: QAN) share price is 4.5% higher today to $5.77 as investors bet that falling oil prices could boost the Flying Kangaroo's bottom line in FY 2019, FY 2020 or beyond.
Qantas's fuel bill is one of its major costs and any reduction is likely to fall straight to the bottom line and translate into more dividends or share buy-backs for investors all else being equal.
As at October 25 2018 Qantas had hedged or locked in 76% of its fuel costs for FY 2019 and 39% for FY 2020, which means it still has some room to benefit from a falling oil price.
Airlines are generally reluctant to hedge full fuel costs out too far out, as if oil prices do fall sharply it may make a fully hedged airline uncompetitive against rivals able to offer cheaper fares at still strong profit margins.
The Qantas share price is now up nearly 5x in five years from $1.16 in December 2013 to $5.77 today largely on the back of a savage cost-cutting program and the tailwind of falling fuel bills.
However, it should be noted Qantas's other core costs (such as pilots, cabin crew, ground staff etc) are relatively fixed even if passenger numbers on flights drop off, therefore if tickets sales fall then profits will also head south quickly.
Qantas investors then can continue to expect a bumpy share price.
