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  • Writer's pictureOwen

QANTAS isn't the bargain it appears.

Qantas is Australia's dominant airline which has benefitted greatly from reopening following COVID controls. Record earnings have been achieved in an environment with muted competition.

In this report, we first explain the recent record profits.

Then we examine the several headwinds that loom in the short and longer term for Qantas including:

  • Falling Australian consumer spending due to sharply higher mortgage rates.

  • Delayed capex in new planes will need to accelerate sharply as average plane age approaches 15 years. This will drag on earnings for many years.

  • Competition is re-emerging post COVID just as consumer trust in Qantas has plummeted due to wide spread operational issues.

  • Chinese air capacity has not returned to pre-COVID levels and this may continue for far longer than many analysts expect.

Qantas valuation is fair but far from attractive and towards the top of the investable range. Consider taking profits if you are sitting on paper gains.

We rate Qantas a hold with a negative bias.

The full report appears on Seeking Alpha here.

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