Qantas Airways Limited (ASX: QAN) reported record revenue in its Q1 results this morning, but there are still some headwinds holding the company back. Here are the key points.
About Qantas
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, and 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.
Q1 Key Results
Qantas reported that total group revenue grew 1.8% in Q1 FY19 to a record $4.56 billion. This growth was driven largely by strong international performance, which offset a decline in domestic revenue.
Group domestic unit revenue fell 0.9% during the quarter despite domestic capacity increasing by 0.5%.
Impacting this domestic revenue was a slowdown in the growth of small business travel demand, while corporate travel demand was flat. Despite these segments struggling, Qantas increased its market share in both segments.
Group international unit revenue grew by 4.4%, led by a reduction in competitor capacity and benefits of network and fleet changes.
In terms of headwinds, it is expected that protests in Hong Kong will lead to a $25 million impact on first-half profit performance, but capacity reduction is expected to limit the impact in the second half.
Deterioration in global trade conditions is also impacting Qantas and is expected to reduce profit by $25 million to $30 million for the full year.
Looking at fuel, which has been an issue for Qantas recently, the company has now fully hedged its fuel for FY20 but maintained the ability to benefit from large price falls. Based on a price of $109 per barrel for the year, Qantas’ full-year fuel cost is expected to be $3.98 billion, up $29 million in the first half compared to 1H19.
Qantas Group CEO Alan Joyce said the focus remains on cost reduction.
“Given the slower revenue environment, we have a strong focus on cost reduction to make sure we keep delivering on our transformation targets,” he said.
“Part of this is about taking opportunities to reduce complexity and constantly improving how efficiently we manage our business.”
Time To Buy Qantas Shares?
Qantas appears to be performing well but there are still headwinds that could limit growth in FY20. However, with the share price up around 16.5% over the last six months, the price-earnings (P/E) ratio is still only about 12 times, which does make Qantas look relatively cheap.
If you’re looking for dividends, the fully-franked 3.82% dividend yield still makes Qantas shares look fairly attractive.
For other proven dividend shares, check out the free report below.
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Disclosure: At the time of writing, Max does not have a financial interest in any of the companies mentioned.
