Why this fund manager believes Qantas (ASX:QAN) could emerge “larger and more valuable”

Few sectors have been as hard hit by COVID-19 as the airline industry. But this fundie believes Qantas could emerge stronger…

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The Qantas Airways Limited (ASX: QAN) share price has shrugged off its morning losses to be up 1.65% in late afternoon trading.

At $5.56 per share, it’s still 22.8% down since 2 January, having yet to recover from the drubbing delivered by the global pandemic. As domestic and international air travel ground to a halt, Qantas share price plummeted 70% by 19 March.

Still, the 158% rally from the 19 March low is massive. For comparison, the broader S&P/ASX 200 Index (ASX: XJO) is up 45% from its own 23 March low.

But despite that strong rally, and numerous headwinds still facing the airline in the mid-term, Montgomery Investment Management director Tim Kelley says there are good reasons why the Qantas share price could run higher.

We’ll get to that in a tick. But first…

What does Qantas do?

Qantas is Australia’s largest airline for regional, domestic and international travel. Qantas launched the low-cost carrier Jetstar in Australia in 2004 in answer to Virgin Australia’s low-cost offerings. Jetstar-branded airlines now operate across Asia Pacific, so long as borders are open.

The company’s subsidiary businesses include Qantas Freight Enterprises, Qantas Frequent Flyer and Qantas Loyalty. Qantas shares began trading on the ASX in 1999.

The case for further upside in Qantas’ share price

Writing in Livewire, Tim Kelley explains why there could be further upside for the Qantas share price:

As we noted in May, QAN entered the pandemic in a strong position, with a capable management team, a good liquidity position, and a business that relies more on domestic (which is likely to resume sooner) than international travel for profitability. It also benefits from a strong loyalty business which has continued to generate revenue through the pandemic.

Citing Virgin –which went into administration on 21 April owing almost $7 billion to creditors – Tim points out that Qantas’ relative strength could allow it to come out of the pandemic shutdowns strongly even as other airlines lose out on market share.

While lasting impacts from the company’s proactive initiatives during the pandemic shutdowns remain to be seen, Tim concludes:

“It is reasonable to think that Qantas’s relative strength going into COVID-19 will prove to be a very valuable asset, and that post-COVID it may be a larger and more valuable business than it had been.”

As domestic borders reopen and the world moves closer to a vaccine that could see the return of international travel, the fund manager believes the Qantas share price will be one to watch.

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Motley Fool contributor Bernd Struben has no position in any of the 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 Scott Phillips.

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