Qantas share price soars 6% on surprise profit guidance upgrade

Trading conditions just keep getting better for Australia's flag carrier airline…

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Key points
  • Qantas shares are ascending on Wednesday
  • This follows news that the airline operator has upgraded its guidance again
  • Qantas also expects its net debt to be lower than previous guidance

The Qantas Airways Limited (ASX: QAN) share price is pushing higher on Wednesday.

In morning trade, the airline operator's shares are up 6% to a new 52-week high of $6.21.

A woman reaches her arms to the sky as a plane flies overhead at sunset.

Image source: Getty Images

Why is the Qantas share price rising?

Investors have been bidding the Qantas share price higher on Wednesday after the company upgraded its earnings guidance just over a month after last upgrading it.

According to the release, continued strength in travel demand has put Qantas on course to deliver a stronger than expected profit during the first half.

Management expects the airline to post an underlying profit before tax of between $1.35 billion and $1.45 billion for the half. This represents a $150 million increase to the guidance range given in early October.

Qantas notes that this is being driven by consumers continuing to put a high priority on travel ahead of other spending categories. In addition, there are signs that limits on international capacity are driving more domestic leisure demand, which is benefiting Australian tourism.

Positively, this strong profit is being generated despite fuel costs remaining significantly elevated compared with FY 2019.

In fact, management expects its fuel costs to reach approximately $5 billion for FY 2023, which would be a record high for the company. That's despite international capacity tracking around 30% below pre-COVID levels.

Net debt keeps falling

Also potentially giving the Qantas share price a boost today is news that the company expects its net debt to fall to an estimated $2.3 billion to $2.5 billion at the end of December. This is around $900 million better than expected in its most recent update.

This is due largely to the acceleration of revenue inflows as customers book flights into the second half and beyond. The deferral of approximately $200 million of capital expenditure to the second half has also boosted its cash position.

Finally, the airline also provided an update on its COVID credits. It highlights that 60% of the $2 billion in COVID-related travel credits have now been redeemed by customers. Total credit usage has been consistent at a rate of ~$70 million a month and new initiatives will be announced shortly to encourage the full use of the remaining credits over the next year.

The Qantas share price is now up over 20% in 2022.

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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