The Qantas Airways Limited (ASX: QAN) share price flew higher in November. But does strong demand mean the airline can take off in December?
Certainly, the lockdown era of COVID was very difficult for the airline. But now that people are allowed to fly again, it's a boom time for the business.
Let's look at what the business said in its latest update about the current situation.
FY23 update
Qantas said that continued strength in travel demand has resulted in the airline upgrading its profit expectations for the first half of FY23.
It's expecting underlying profit before tax of between $1.35 billion to $1.45 billion. That updated guidance represented a $150 million increase to the profit range given in early October. So, in less than two months, the company's seen a big increase in expected profit. Of course, more profit is usually a bonus for the Qantas share price.
Why is this happening? Qantas says consumers continue to put a "high priority on travel ahead of other spending categories and there are signs that limits on international capacity are driving more domestic leisure demand, benefiting Australian tourism".
Qantas has put $200 million towards rostering additional staff, continued recruitment, and reserve aircraft. This is aimed to help the airline to be the "most on-time domestic airline", as it reportedly was in October.
Going into December, the business is expecting its net debt to drop to between $2.3 billion to $2.5 billion by the end of the month, around $900 million better than previously expected. It is due to an "acceleration of revenue inflows as customers book flights".
Qantas is also expecting to add capacity "as quickly as possible in the second half of the year while maintaining operational reliability".
Do experts rate the Qantas share price as a buy?
A number of brokers rate Qantas shares as a buy, including UBS, Ord Minnett, and Morgan Stanley which have price ratings of $7.60, $8.50, and $9 respectively. That implies a possible rise in the Qanta share price of between 20% to 45% over the next year.
The brokers think that the strength can continue into FY24 and the better-than-expected balance sheet could lead to more capital initiatives for shareholders. Qantas is already carrying out a share buyback of $400 million announced in August. It is more than 76% complete at an average price of $5.66.
Qantas itself said:
Low levels of net debt put the board in a position to consider future shareholder returns in February 2023 consistent with the group's financial framework and phasing of capital expenditure for fleet renewal.
Snapshot
Over the last two months, the Qantas share price has climbed 16%.
