Qantas Airways Limited (ASX: QAN) shares are up 0.2% to $4.91 on Tuesday, while the S&P/ASX 200 Index (ASX: XJO) is trading 0.44% higher.
The Qantas share price is now down 26% over the past six months as the company had faced drama after drama, including a High Court decision that its sacking of 1,700 workers during COVID-19 was illegal.
The latest news to hit the airline stock is a flurry of management resignations, most significantly that of chair Richard Goyder, although he won't be departing until the end of 2024.
But Dr John Guadagnuolo of Antares is looking past all this noise. He describes Qantas shares as "one of the most attractive investments" of the ASX today on a three-year view.
Fundie says it's the long haul that matters for Qantas shares
Dr John Guadagnuolo is a portfolio manager and transport sector research specialist.
In relation to Qantas shares, he comments:
Our conviction stems from the industry structure, licence to operate, valuation and finally, demand (As per the trading update issued on Monday 25th September, demand remains the same as it was in the June quarter 2023).
Put simply, people are still just as keen to travel with Qantas despite the headlines.
In terms of demand, Dr Guadagnuolo says Qantas and many other global airlines have been able to raise prices because "demand has exceeded expectations materially" amid constrained supply of flights.
He also points to fleet renewal plans that saw Qantas order new aircraft during COVID-19, ahead of other carriers, and the fact that Airbus has designated Qantas a 'marquee client' whose orders are prioritised.
This means Qantas will have a more fuel-efficient fleet of planes a long time before many of its competitors. In fact, Airbus is taking about six years to complete every new aircraft order made today.
He comments:
We believe this is a significant competitive advantage for QAN.
By placing orders during the pandemic and being a marquee client, QAN will have secured new, far more efficient aircraft than nearly all its rivals, both domestic and international.
With the delay in receiving new planes ongoing, its rivals will be years behind. On our estimates, QAN will have a fleet operating cost advantage over its competitors of around 8%.
In an industry where this is the profit margin on average over time, the significance of this cannot be underestimated.
However, the fundie notes that Qantas deserves criticism for a lack of investment in service recently.
… QAN has amongst the lowest increases in unit costs of the major airlines. When compared to the price rises, we see that profit margins have expanded. We believe QAN should have spent more on service, especially given the disruptions incurred due to constraints lingering from COVID.
Media furore 'akin to noise'
Dr Guadagnuolo compares Qantas' current situation to that of Optus and Medibank Private Ltd (ASX: MPL) during their cybersecurity breaches, noting:
In both cases the companies experienced a sea of bad publicity for an extended time. Yet with the incidents now 6-12 months in the past, both companies are again growing policy holder or subscriber numbers as appropriate.
With much of the noise around QAN, it is understandable that people might think nobody will choose to fly with them. This is simply not true. QAN has the largest loyalty programme in Australia via its Qantas Frequent Flyers with over 15 million members.
Should you buy Qantas shares?
The Antares team says Qantas shares are trading at an unjustified 50% discount to some international peers.
Qantas stock has fallen further as the company keeps making the headlines for all the wrong reasons.
Dr Guadagnuolo says the current valuation gap is "compelling and provides for significant potential valuation upside to the QAN share price, if and when QAN regains the market's trust".
