The Qantas Airways Limited (ASX: QAN) share price has performed strongly in recent times, with a 14% increase in the past month and around 30% in the last year, as shown on the chart below.
A sizeable part of the gain came after the business reported its FY24 result, which was fairly positive, given our economic circumstances.
In the 2024 financial year report, Qantas revealed that it made $2.08 billion of underlying profit before tax (down 16%) and $1.25 billion of statutory net profit after tax (down 28%).
While it represented a decline, I thought the result was strong, considering airfares have reduced from the peak. With some of the profit, Qantas will distribute up to $400 million to shareholders in the first half of FY25 with an on-market share buyback.
With the result out of the way, we need to consider whether the Qantas share price is a buy at this higher price.
Negatives
The airline is currently going through the biggest fleet renewal program in its history, with 20 aircraft due to arrive in FY25. The company needs to do this to ensure it has the planes it needs, but this comes with higher costs, which is a headwind for profitability.
One expense that's going higher is net finance costs, which are expected to rise from $201 million in FY24 to $270 million in FY25 amid its higher net debt, which was $4.1 billion at 30 June 2024, and the high interest rate environment.
Qantas noted in its outlook commentary that group international unit revenue is expected to fall between 7% and 10% in the first half of FY25 (compared to the prior corresponding period) as market capacity continues to be restored.
There's also the fact that the Qantas share price has increased. The higher a valuation goes, the less upside potential there is.
Positives about the Qantas share price
The airline said in its FY24 result that, looking forward, bookings and travel demand remain stable. It noted that the intention to travel and the revenue intake trends remain "positive across all flying brands".
During FY24, Qantas saw both its on-time flight performance and customer satisfaction scores increase, which I believe bodes well for being able to continue to win passenger volumes.
While planes cost a lot, replacing them was inevitable. The new planes will, the airline said, provide Qantas with improvements across operating costs, network flexibility, passenger comfort and emissions.
Pleasingly for Qantas, group domestic unit revenue is expected to increase by between 2% to 4% in the first half of FY25. Overall, Qantas said it's seeing "positive revenue momentum" heading into the first half of FY25.
The Qantas loyalty division also continues to perform well – in FY24, this segment grew underlying earnings before interest and tax (EBIT) by 13% to $511 million. In FY25, Qantas loyalty is expected to grow underlying EBIT by at least another 10%.
Are Qantas shares appealing?
In FY24, the business made underlying earnings per share (EPS) of 88 cents and statutory EPS of 75.9 cents. Broker UBS suggests Qantas' EPS could rise to 94 cents in FY25, putting the Qantas share price at 7x FY25's estimated earnings.
EPS could then climb over the next few years to reach $1.16 in FY29. Growth of 23% between FY25 and FY29 is not incredible, but for a business with a P/E ratio of 7, I think it's still appealing and could beat the market over the next few years.
