The Qantas Airways Limited (ASX: QAN) share price has hit turbulence since the emergence of the Omicron COVID mutation.
If that wasn't enough to worry shareholders, a top broker is warning that the airline may need a capital injection soon.
It isn't only the Qantas share price that's under the Omicron cloud, of course. The Webjet Limited (ASX: WEB) share price and Flight Centre Travel Group Ltd (ASX: FLT) share price have also been on the nose.
Qantas share price buffeted by Omicron
The more contagious COVID-19 variation is threatening to send economies back into lockdowns and shut borders.
While this isn't the time to panic as a lot is still unknown about Omicron, Credit Suisse has run some scenarios to measure the impact on our largest airline.
"Key Omicron issues for air travel reopening are the severity of symptoms, the efficacy of existing vaccines, and how long it will take to conclusively learn this," said the broker.
"If it's two weeks, Qantas' busy Christmas travel period may be saved."
Longer flight path to recovery
The danger here is that it may take two months for scientists to work out how deadly Omicron is. It might take even longer for vaccines to be modified to fight the mutation.
"Given the record of some risk-averse state leaders, we think reopening is likely to be delayed," warned Credit Suisse.
"We lower forecasts for a 3-4 month delay to air travel recovery, with recovery shifted to 4Q FY22."
Is the Qantas share price worth buying?
Fortunately, in this base case scenario, Qantas is unlikely to require a further capital raise. But even with this outcome, the Qantas share price is overvalued, noted the broker.
This is why Credit Suisse rates Qantas shares as "underperform" (meaning "sell") as it calculated fair value at only $4.10 a share.
Brace for emergency landing
But cracks in Qantas' balance sheet will be evident under a "bear case" scenario. This is when we find out that current vaccines do not protect us from severe illness caused by Omicron. Under such a scenario, the travel recovery will be delayed by nine to 12 months.
The airline is likely to post a profit before tax (PBT) loss of $1.75 billion in FY22 followed by a $290 million loss the following year.
In turn, this will lead to Qantas' net debt reaching $7.3 billion in the current financial year. Credit Suisse reckons Qantas will then be forced to undertake an emergency capital raise to repair its balance sheet.
The Qantas share price will only be worth $3.50 under this bleak scenario, in Credit Suisse's opinion.
Saving Christmas
But there is a bull case that the broker considered as well. This assumes the Christmas travel boom stays on course as Omicron poses less of a threat.
This will allow Qantas to post an FY22 pre-tax loss of $1.2 billion before delivering a PBT of $1.35 billion in FY23.
In this bull case, Credit Suisse estimates the Qantas share price will be worth $5.30 a share. That's a 7.5% upside to the last closing price for the ASX airline.
