Why this fund manager says it's time take profits on Qantas shares

The Flying Kangaroo could be in for some turbulence ahead.

Qantas Airways Ltd (ASX: QAN) shares are moving higher today.

Shares in the S&P/ASX 200 Index (ASX: XJO) airline closed on Monday trading for $7.18. In morning trade on Tuesday, shares are swapping hands for $7.25 apiece, up 1.0%.

For some context, the ASX 200 is up 0.6% at this same time.

As you can see on the chart above, Qantas shares have strongly outperformed the benchmark over the past year.

Despite slipping from the multi-year closing high posted on 26 September, shares in the Flying Kangaroo remain up 48% over 12 months. That compares to an 18% gain posted by the ASX 200 over this same period.

But according to Red Leaf Securities' John Athanasiou (courtesy of The Bull), the Flying Kangaroo could be in for some turbulence ahead, which could make now a good time to take some of those profits off the table.

A plane flies into storm clouds.

Image source: Getty Images

Time to take profits on Qantas shares?

Explaining his sell rating on Qantas shares, Athanasiou said, "Qatar Airways Group recently announced it intended to acquire a 25% equity stake in Virgin Australia."

Athanasiou continued:

If the Foreign Investment Review Board (FIRB) approves the proposal, the domestic aviation market in Australia could become significantly more competitive. Heightened competition may lead to a price fare war with Qantas, potentially putting pressure on its profit margins.

Given the uncertainty, it may be prudent to take some profits in Qantas until the FIRB reaches a decision.

What's happening with Qatar Airways and Virgin?

ASX investors learned of Qatar Airways' intention to acquire a minority 25% equity stake in Virgin from Bain Capital on 1 October.

And the market reaction clearly showed some concern over the potential impact on Qantas. Qantas shares closed the day down 3.4%, with shares having shed 6.1% from the announcement date by market close on 3 October.

Qatar Airways not only counts as one of the world's biggest airlines, but it's also rated amongst the best.

Qantas has been commanding high airfares amid resurgent demand and limited competition post the pandemic reopening. But in a warning shot to Qantas shares, Virgin management said they expect the partnership with Qatar will in turn increase competition in Australia's air travel industry.

As Motley Fool analyst James Mickleboro noted on the day, "This may mean the high airfares that Qantas has been able to command in recent years could be under threat and weigh on its profits."

Commenting on the Qatar Airways deal on the day, Virgin Australia's Group CEO, Jayne Hrdlicka, said:

This partnership brings the missing piece to Virgin Australia's longer-term strategy and is a huge vote of confidence in Australian aviation.

Importantly, it will further strengthen Virgin Australia's ability to compete over the long term, which will inevitably translate into more choice and even better value airfares for consumers as well as additional Australian aviation jobs.

Qantas shares are currently down 2.9% since the pending partnership was announced.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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