The Qantas Airways Limited (ASX: QAN) share price is up 0.9% to $6.47 at the time of writing.
The move comes as Australia's biggest airline conducts its first investor day in four years today.
Before the market open, the travel giant released its investor day presentation.
Let's take a look at the details.
Qantas share price up amid assurances of future margin growth
Qantas Group says both its Qantas and Jetstar businesses are "positioned to leverage unique competitive positions to deliver margin and earnings growth" as the COVID travel recovery continues.
Qantas said post-COVID travel demand was "rebounding strongly" with leisure, resource and charter demand now exceeding pre-pandemic levels.
Contributing to improving demand is a recovery in Australia's corporate, small business, government, and construction sectors.
Qantas says internal research shows twice as many people plan to fly domestically over the next 12 months. Additionally, 80% plan to fly internationally over the next 12 months.
These intentions are reflected in Qantas Group's revenue. The company says revenue is now 118% above pre-COVID levels for domestic travel and 123% above pre-COVID for international travel.
The International Air Transport Association (IATA) projects global international and domestic travel demand to increase between now and 2041.
It predicts demand in the Asia-Pacific region will grow the most at an average of 4.9% per annum. The Middle East will have the second-highest growth rate at 4.3% per annum.
Qantas says this pattern "reinforces the opportunity of unique direct routes from Australia".
COVID made the company better
The airline says it emerged from COVID in a stronger position through enhanced operations, new domestic and international routes, freight market growth, and the timely securing of Project Sunrise and long-term fleet renewal orders.
Qantas says it has overcome many challenges reported in the media, including flight delays and cancellations and baggage problems during the initial COVID recovery period.
Qantas says it has delivered the best on-time performance among the major domestic airlines for 10 out of the past 11 months. It also has the lowest average cancellation rate over the same period.
Its mishandled baggage rate is now better than pre-COVID and its average call centre wait time is five minutes, which is 75% faster than pre-COVID.
Rising industry profits
According to the investor presentation, industry profits are expected to almost double in FY23.
Qantas says it "has established a structurally advantaged share of a growing domestic profit pool".
It notes that the average annual industry profit for domestic travel in FY15-FY19 was $1,100 million and Qantas took about a 90% share.
This represented a more than doubling in industry profit from FY11-FY15, largely due to expanding capacity in the market.
Qantas now expects industry profit in FY23 to reach $2,000 million, with Qantas taking an approximate 80% share.
This time, growth in industry profit is due to "transformation across industry and network restructure".
A 'step change in earnings' for Qantas
Qantas said all the changes it has made to its operations have "delivered a step change in earnings".
The company estimates its domestic Qantas EBIT margin will rise from about 15% pre-COVID to 18% in FY23 and FY24.
Its domestic Jetstar EBIT margin was 14% pre-COVID. The company is now expecting a margin of 10% to 11% in FY23 and 15% in FY24.
In the international segment, the airline estimates its Qantas EBIT margin will rise from about 5% pre-COVID to 11% in FY23 and more than 8% in FY24. Its future target margin beyond FY24 is 10% to 12%.
It estimates its Jetstar EBIT margin will rise from about 12% pre-COVID to 10% in FY23 and 10% to 12% in FY24 and beyond.
Qantas says it expects market supply constraints in the international segment to remain for several years.
Among the challenges are long-term storage of planes in the desert causing maintenance delays, engine and spare part shortages, a tight labour market, and delays from manufacturers in new fleet delivery with production lines not expected to return to FY19 levels until 2026.
Record profit expected in FY23
Last week Qantas delivered a market update. The highlight was expectations of a record underlying profit before tax in FY23 of between $2.425 billion and $2.475 billion.
Qantas attributes this to rebounding travel demand, reduced jet fuel costs, and high ticket prices contributing to greater cash generation.
Qantas gave updated net debt guidance of $2.7 billion to $2.9 billion. This is well below its target range of $3.7 billion to $4.6 billion.
The company says it will continue to drive improved earnings by investing in customer experience improvements, driving the highly successful rewards program
What next for the Qantas share price?
Last week Goldman Sachs released a note based on the airline's update. The top broker kept Qantas on its coveted conviction buy list and upped its share price target from $8.30 to $8.50.
Based on the current Qantas share price of $6.47, this implies a potential upside of 31% for investors over the next 12 months.
Qantas also announced it was increasing its on-market share buyback by up to another $100 million.
