Qantas Airways Ltd (ASX: QAN) shares are trading at $8.70 apiece on Thursday morning.
The ASX airline shares have had a volatile run so far in 2026, swinging wildly between $8.15 and $10.74.
The travel shares have now fallen by around 19% over the past three months alone and are 17% lower year-to-date.
Image source: Getty Images
What has caused the Qantas share price depression over the past three months?
The latest downturn started in early August, sparked by higher fuel costs and softer travel demand. The selloff then picked up pace after the company posted its FY26 earnings results later in the month.
It looks like investors were spooked by declines across the board. Qantas reported a 13.8% year-on-year decline in underlying profit before tax, to $2.06 billion for FY26.
Statutory profit after tax fell around 29% to $1.3 billion, and underlying earnings fell 12.7% to 96 cents.
Qantas' net debt of $6.2 billion was at the midpoint of its target range of $5.5 billion to $6.9 billion for FY26.
With profits down, management declared a fully-franked final dividend of 19.8 cents per share and a total dividend of 39.6 cents per share, down 25% from last year's final payout.
So, are the shares now a bargain buy, or a risky investment?
The headwinds facing the company this year haven't gone away. Conflict in the Middle East and rising fuel prices continue to put pressure on airline profits.
The latest financial result shows that Qantas came under pressure in FY26. But while the result looks poor on paper, it's worth noting that the company has remained fairly buoyant.
Qantas reported that the impact from the Middle East conflict has cost the airline an estimated $420 million to date, largely driven by higher jet fuel costs.
But while a $420 million profit hit sounds bad, the company managed to execute impressive damage control.
The airline hedged 90% of its crude oil exposure for the second half of FY26, ahead of the conflict ramp-up. This helped to absorb some of the fuel price increase.
It also swiftly readjusted its operational strategy when the Middle East region closed its airspace, by reallocating some of its fleet to alternative routes and cutting underperforming flights to prevent burning fuel on low-profit routes.
This strategy prevented a much bigger catastrophe and kept the airline functional.
But while Qantas successfully mitigated some fuel damage, the structural issue hasn't gone away. Refining margins for jet fuel remain double their pre-war levels, creating a persistent drag on profit margins. The question is how the airline will manage higher costs going forward.
I'm confident that it's possible. As part of its FY26 results in August, Qantas said it expects unit revenue to grow by 8% to 10% in the first half of FY27, despite higher oil prices.
I expect that robust domestic and international travel demand will also help maintain some stability in the aviation giant's shares going forward.
The shares look cheap, too. Qantas is currently trading at a price-to-earnings (P/E) ratio of around 9.9x. That's much lower than the ASX 200 average of around 25x.
Experts also agree that the shares are now heavily undervalued. TradingView data shows all analysts have a buy/strong buy rating on Qantas shares. The average $11.53 target price implies around a 33% upside from current trading levels.
At the current $8.70 share price, I think Qantas shares are a bargain buy.
