Qantas share price soars 12% on stellar market update

Qantas shares are taking off on Thursday…

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Key points

  • Qantas shares are soaring on Thursday
  • This morning the airline operator released a market update
  • Qantas expects to report a half year underlying profit before tax of $1.2 billion to $1.3 billion

The Qantas Airways Limited (ASX: QAN) share price is taking off on Thursday morning.

At the time of writing, the airline operator's shares are up 12% to $5.78.

Why is the Qantas share price soaring?

Investors have been bidding the Qantas share price higher today after the company released an impressive market update.

According to the release, strong travel demand is accelerating Qantas' recovery from the COVID crisis, which allowing the company to keep investing for customers and its people while also strengthening its balance sheet.

Based on forward bookings, current fuel prices, and latest assumptions about the second quarter, the company expects underlying profit before tax of between $1.2 billion and $1.3 billion for the first half of FY 2023.

This follows five consecutive halves of heavy losses due to the pandemic and cumulative statutory losses of $7 billion.

Another positive is that Qantas expects its net debt to fall to between $3.2 billion and $3.4 billion at 31 December, which is below the bottom of the target range of $3.9 billion.

The release also reveals that the Qantas Loyalty business is expected to post record earnings for the first half. This puts the business on track to reach its FY 2023 EBIT target of $425 million to $450 million.

Market conditions

Qantas also provided investors with an idea of what is happening in the travel market right now.

It advised that domestic travel demand remains strong across all categories. Revenue intakes for business purposes are over 100% of pre-COVID levels and leisure intakes have further strengthened to over 130%. Qantas' yields from international markets are also very strong but are expected to moderate as Qantas and other carriers steadily increase capacity.

Group International capacity is now expected to increase from 61% of pre-COVID levels in first half of FY 2023 to 77% in the second half. This is largely determined by the ability to return additional A380s from storage and required maintenance, as well as the delivery of new aircraft.

Group Domestic capacity will be 94% of pre-COVID levels for the first half, growing to around 100% for the second half. This is six percentage points below previous capacity guidance, which is due to management's plan to protect the sustained improvement in operational performance as the broader industry recovers.

Speaking of which, Qantas' on time performance and cancellations have continued to improve. October's on time performance is currently 75% and cancellations are at just 1.7%. The latter is market leading and better than pre-COVID levels. Mishandled bags remain low at 6 per 1000 passengers in September and into October.

And while things haven't been quite as positive for the Jetstar business, the release notes that its performance has improved greatly this month.

Management commentary

Qantas CEO, Alan Joyce, commented:

It's been a really challenging time for the national carrier but today's announcement shows how far we've come. Since August, we've seen a big improvement in our operational performance and an acceleration in our financial performance.

It's clear that maintaining our pre-COVID service levels requires a lot more operational buffer than it used to, especially when you consider the sick leave spikes and supply chain delays that the whole industry is dealing with. That means having more crew and more aircraft on standby and adjusting our flying schedule to help make that possible, until we're confident that extra support is no longer needed.

Qantas' operations are largely back to the standards people expect, and Jetstar's performance has improved significantly in the past few weeks and will keep getting better with the extra investments we're making.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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