Could the Qantas Airways Limited (ASX: QAN) share price be a buy after the airline released its FY21 half-year result?
What did Qantas announce?
The airline announced that it made an underlying loss before tax of $1.03 billion and a statutory loss before tax of $1.47 billion.
Qantas said that it suffered a $6.9 billion revenue impact from the COVID-19 crisis in the first half of FY21, which amounts to a 75% reduction.
Despite that, underlying operational cash flow was still $1.05 billion. It was the domestic airlines that generated positive underlying cash flow for Qantas. Whilst Qantas International is still suffering because of COVID-19 and closed borders, Qantas Freight is performing very strongly due to the limited number of passenger planes flying (which used to carry freight along with the passenger cargo).
The airline also said that Qantas Loyalty continues to generate good cash flow thanks to credit card spending, health insurance, Qantas Wine and the Qantas rewards store.
Cost cuts
A major feature of the report was cost savings. It's looking to save a substantial amount of costs over the next three years, the target is at least $1 billion of permanent annual savings from FY23. The short-term target is $600 million of permanent savings for FY21, which Qantas said is on track.
This involves at least 8,500 people leaving the business. More than 5,000 have already left so far, with the remainder expected to have left by the end of FY21.
A total of 14,500 full-time equivalent roles are now stood up while around 11,000 full-time equivalent roles remain stood down, most of which are associated with international flying.
Qantas also said that significant permanent savings are also being achieved through new deals with major travel agents.
It's looking at the rationalisation of the group's property footprint, including the hand back or subleasing of surplus office space. It also said that the finalisation of a major review, which includes Qantas and Jetstar head offices, is expected by the end of March.
Finally, Qantas said that it's renegotiating its supplier deals, including expiring aircraft leases.
In terms of government support, it's still receiving assistance. Jobkeeper payments are still going to employees who are not working. Support for regional and domestic passenger flights, and for some international freight routes, which would not otherwise have been commercially viable, helped to keep key transport links active.
Outlook
Qantas said that the recent border closures have delayed the group's recovery by an estimated three months. However, it believes that international travel can restart by the end of October 2021, with the exception of increased travel with New Zealand expected for July 2021.
Domestic capacity is expected to rise to 80% of pre-COVID levels in the fourth quarter of 2021. Qantas is continuing to focus on managing the business to positive net free cash flow.
Broker opinions on the Qantas share price
UBS has a target of $6.20 for the Qantas share price. The result was a little better than what the broker had been expecting. The state borders were temporarily shut off, but the Qantas liquidity didn't fall. UBS thinks the market isn't quite pricing in all of the potential cost cuts that the airline can achieve.
However, Credit Suisse has a Qantas share price target of $3.90. The delay in the domestic recovery is a negative and the balance sheet will come under greater scrutiny. However, a change in the pace of recovery could change its views.
