Could it be time to buy Qantas Airways Limited (ASX: QAN) shares after the airline released its FY19 result?
Qantas is Australia’s leading airline. It was founded in the Queensland outback in 1920, the Qantas name was originally Queensland and Northern Territory Aerial Services. The company operates two main airlines – Qantas and Jetstar – and subsidiary businesses including other airlines, businesses in specialist markets such as Q Catering, Qantas Freight Enterprises and the popular Qantas Frequent Flyer program. It employs some 30,000 people with around 93 per cent of them based within Australia.
Did Qantas’ FY19 Profit Soar?
Qantas revealed that it managed to increase its revenue by 4.9% to almost $18 billion thanks to an increase of revenue per available seat kilometre.
Net passenger revenue rose by 5% to $15.7 billion and net freight revenue increased by 8.5% to $971 million. Other revenue grew by 0.8% to $1.3 billion.
The airline said that its underlying profit before tax dropped 17% to $1.3 billion and statutory profit before tax fell 6% to $1.27 billion. Statutory net profit after tax dropped 6.5% to $891 million. According to CommSec and Bloomberg, investors were expecting a net profit of $954.8 million, so Qantas appears to have missed expectations here.
Fuel was the biggest cause for the fall in profit, fuel costs increased 19% because of higher fuel prices which was partially offset by hedging strategies and fuel transformation initiatives.
There were a couple of other exciting announcements. Around 25,000 staff will get a $1,250 travel bonus worth $32 million.
Qantas also announced direct New York and London to Sydney research flights for ‘Project Sunrise’.
Qantas Shareholder Returns
During the year Qantas generated $1.24 billion of net free cash flow. Some of this was to reduce net debt by 4.1% to $4.7 billion.
Qantas will pay a final dividend of 13 cents per share. It’s also launching an off-market share buy-back up up to 79.7 million shares – worth $400 million at yesterday’s share price.
Qantas said that with surplus capital, the first $400 million will be used for a base dividend of 27 cents per share a year.
Is The Qantas Share Price A Buy?
Airlines have been notoriously difficult to make a lot of money from over the decades, but these days it may be better with the incumbents having a pretty good time at the moment. Even Warren Buffet’s Berkshire Hathaway bought some shares of US airlines recently.
The base Qantas dividend would be a decent yield of 4.7% at the pre-open share price, not bad. But, I think there could be businesses offering more compounding profit growth over time that don’t face inescapable cost movements like fuel, such as the ones researched by our top analyst in the free report below.
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