The Qantas Airways Limited (ASX: QAN) share price is under the spotlight as a potential investment opportunity after the airline reported its FY22 results to investors on Thursday.
Despite Qantas reporting a whopping $1.9b loss, the market appeared to like what it saw, with the airline's shares rising by 7% yesterday.
But, one strong day doesn't necessarily mean that Qantas is now too expensive to be worth buying.
Some analysts seemed to be impressed by what Qantas reported, according to reporting by The Australian.
Analyst thoughts on the result
The newspaper reported that analyst Matt Ryan from investment bank Barrenjoey said the Qantas FY22 earnings before interest, tax, depreciation and amortisation (EBITDA) was in line with guidance.
However, the net debt was much better than the gearing range target. This enabled Qantas to announce a sizeable on-market share buyback.
Barrenjoey noted that Qantas is benefiting from a large recovery of demand, Ryan said this "can also be seen in the revenue received in advance which was almost $2 billion higher than six months ago. Guidance is broadly in line with our forecasts but assumes a reduction in domestic capacity of 10%."
The Australian also reported on comments by E&P Financial analyst Cameron McDonald, who thought that the market would like the result and that the balance sheet is in a "healthy" position. He noted that the $400 million buyback was a surprise and that the company is guiding for "increased capacity to be deployed". He also noted an increase in revenue per available seat kilometre, meaning price increases.
Profit generation and expected future profit can have a large impact on the Qantas share price, so let's look at that.
How much of a recovery is Qantas seeing?
Qantas reported in its FY22 result that it made an underlying loss before tax of $1.86 billion and a statutory loss before tax of $1.19 billion. The difference between those two measures largely reflected the $686 million net gain on the sale of surplus land, which helped it reduce its COVID-related debt.
Net debt declined to $3.94 billion – Qantas' optimal target range is $4.2 billion to $5.2 billion.
The airline said that it's trying to offset the CPI inflation between FY19 to FY23 through additional cost and revenue initiatives, despite already delivering $1 billion in annual cost reductions.
It also said the RASK (revenue per available seat kilometre) performance is expected to fully recover increased fuel price across the group (despite the fuel bill for FY23 being expected to be $5 billion). It also said there would be a temporary unit cost increase to address operational challenges.
Qantas is reducing its domestic capacity by another 10% in response to higher fuel costs and operational challenges. Some capacity may be restored once operational resilience improves. In the first half of FY23, domestic capacity will be 95% of pre-COVID levels, in the second half of FY23, it will be 106% of pre-COVID levels.
Group international capacity is expected to increase as more planes enter service and overseas borders continue to open. In the first half of FY23, international capacity will be 65% of pre-COVID levels and then 84% in the second half.
My 2 cents on the Qantas share price
FY22 was another year full of disruption, particularly in the first half. However, I think Qantas seems ready to capitalise on the strong return of demand. The share buyback indicates to me that the company is confident with its expected profitability and financial position.
It's hard to say what the oil price will do next, but it has dropped quite a bit since mid-June. This could also help Qantas' profitability.
While Qantas isn't a business I'd make one of my biggest portfolio positions, I'd be happy to buy some shares at the current Qantas share price thanks to the strong and improving outlook.
