The Qantas Airways Limited (ASX: QAN) share price was a strong performer in August, rising by around 17%.
All of that gain actually came in the last week of the month.
Reporting season is a very interesting time because it gives investors and analysts a look 'under the hood' of businesses. We can get detailed financial analysis and commentary on how an ASX company has performed over the last six or twelve months.
Investors appeared to like what Qantas reported because it was after the release of the FY22 result that the airline's shares experienced that big boost.
Let's go through a quick reminder of what the airline said.
FY22 earnings recap
Qantas said that for the 12 months to 30 June 2022, the underlying loss before tax was $1.86 billion. The statutory loss before tax was $1.19 billion. The difference between these two measures largely reflects the $686 million net gain on the sale of surplus land. This helped reduce COVID-era debt.
However, it managed to generate positive earnings before interest, tax, depreciation, and amortisation (EBITDA) of $281 million after making $526 million of EBITDA in the second half.
Qantas revealed that its domestic operations were profitable at the underlying earnings before interest and tax (EBIT) level in the fourth quarter. Profitability can be an important factor for investors when thinking about the Qantas share price.
The airline told investors that it has seen a huge increase in forward travel demand since borders reopened.
There has been a lot of media attention on the disappointing customer experience in recent months. But Qantas said contact centre wait times, cancellation rates, and mishandled bag rates are "trending back towards pre-COVID standards during August 2022".
It pointed to a "significant improvement" in on-time performance, which lifted from 52% in July to 66% in August. Qantas expects it to reach 75% in September and around 80% in October.
The balance sheet and shareholder returns may have been particularly pleasing for some investors. The net debt declined to just $3.94 billion at the end of June 2022. This was below the target range of between $4.2 billion to $5.2 billion. This was one of the factors that gave the board the confidence to launch an on-market share buyback of up to $400 million.
Promising outlook
Investors often like to look at commentary about the future, so this can also influence the Qantas share price.
Qantas said that it has entered FY23 with its balance sheet repair process "effectively complete, strong levels of travel demand and a clear path to improving its COVID-related operational challenges."
The airline expects to complete its recovery plan in FY23. Qantas said it will deliver $1 billion in annual cost reductions. Qantas is also looking to offset inflation from FY19 to FY23 through additional cost and revenue initiatives.
The company expects fuel costs to be $5 billion in FY23, after a 60% rise in fuel prices compared to FY19. It expects higher ticket prices to recover increased fuel prices, while temporary unit cost increases will help address operational challenges.
In the first half of FY23, Qantas expects domestic capacity to reach 95% of pre-COVID levels. In the second half, the company expects it to be 106% of pre-COVID levels. International capacity is expected to be 65% of pre-COVID levels in the first half of FY23. It's expected to increase to 84% in the second half.
Brokers remain optimistic about the airline's ability to deliver returns. UBS rates Qantas as a buy, with a price target of $6.80. That implies a possible rise of around 30%.
