The Qantas Airways Limited (ASX: QAN) share price has dropped almost 10% since the start of June, as we can see in the chart below. In this article, I'm going to look at whether the ASX travel share is worth buying in the current situation.
There has been a very strong rebound in travel demand compared to the COVID-19 era of closed borders.
Strong travel demand
The company is expecting to make an estimated underlying profit before tax of between $2.425 billion to $2.475 billion in FY23. That's strong profitability.
It noted in a recent market update that fuel prices, costs associated with its operational buffer, and fares are all moderating. Spare capacity is becoming revenue-generating.
By the end of the second half of FY23, domestic flying capacity will be above pre-COVID levels at 104%, led by a significant increase in flying on key routes between Melbourne, Sydney and Brisbane.
International capacity will grow to greater than 80% of pre-COVID levels by the end of the second half of FY23, with the rate of increase slightly below plan because of some supply issues. This includes the three-month delay in restarting the Melbourne-Hong Kong route because of a shortage of ground handlers in Hong Kong.
International capacity will be ramped up from October 2023, which will see international capacity reach around 100% of pre-COVID levels by March 2024. This could provide another boost for the Qantas share price.
Qantas said that forward booking trends indicate "strong travel demand continuing into FY24". Revenue intakes were at 118% of pre-COVID levels for its domestic operations and 123% for international.
The ASX travel share's boss suggested that there is still a mismatch between supply and demand that's "likely to persist for some time, especially for international flying."
CEO sells shares
It was reported last week that current CEO Alan Joyce had sold $17 million of Qantas shares.
The market doesn't typically view management selling shares as a positive, though Joyce is on course to leave the airline business later this year.
Sometimes a sale can be a precursor to more difficult times ahead for the business. But, other times it doesn't make any difference and that company keeps succeeding, such as the sell-downs and ongoing success at Pro Medicus Ltd (ASX: PME).
Is the Qantas share price a buy?
The ASX travel share is still expecting strong travel demand, at least for the next several months. But, the CEO sale is a slightly concerning factor.
On a 5-year outlook, I think Qantas shares can deliver solid shareholder returns because of the low price/earnings (P/E) ratio, the increased underlying profitability, the growing Australian population and the return of tourists.
However, after this COVID-19 travel boom normalises, will there be a reduction in travel or will it stay at these levels for the long term? It's hard to say at this stage – people may be prioritising travel over other spending at this stage, but higher interest rates could possibly curtail future demand.
Commsec numbers suggest that the Qantas share price is valued at just 6 times FY24's estimated earnings. At this lower value, and with strong demand ongoing, I think Qantas shares are still a buy.
