Qantas Airways Ltd (ASX: QAN) shares are down 27% since market close on 5 June.
Shares in the S&P/ASX 200 Index (ASX: XJO) airline stock had gained almost 50% over the previous 12 months. But since then, Qantas shares have flown into turbulence.
Many investors will have lost money as the airline's shares have dropped over the past four months. But Marcus Hughes, co-chief investment officer of hedge fund LHC Capital, isn't among them.
Hughes' decision to short the stock will have delivered the fund some sizeable gains instead.
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Why this fundie shorted Qantas shares
"We don't call markets. We try and predict businesses, but we obviously listen to the signals that are out there," Hughes said (courtesy of The Australian Financial Review).
One of those signals flashed bright on 6 June, when it was revealed that then-outgoing CEO Alan Joyce had sold 2.5 million Qantas shares through an on-market trade. Joyce received an average of $6.75 a share, netting him roughly $17 million.
Neither Qantas nor Joyce offered an explanation for the sale, which left the former CEO holding only 228,924 shares.
Qantas shares fell 4.1% on the day of that announcement.
And the sale spurred Hughes' decision to short the ASX 200 airline.
"Whenever an insider sells, we'll look at shorting a company," he said.
Then there's the underinvestment in the company's fleet of aircraft along with a raft of other rising costs to consider.
"When you don't invest in your fleets, you're clearly trying to take in profits," Hughes said.
Atop future spending requirements to upgrade its fleet, Qantas shares also took some heat after the company reported on the headwinds it faced from higher jet fuel costs and its program to improve customer service and satisfaction.
On the customer service front, Qantas intends to spend some $230 million across a range of improvements. While fuel costs were expected to increase by $200 million over the half year.
With the airline also facing fines potentially exceeding $250 million for selling tickets to flights that had been cancelled, Hughes' decision to short Qantas shares has proven prescient.
