The Qantas Airways Limited (ASX: QAN) share price will be on watch today after the airline revealed its profit is rapidly recovering.
Strong recovery
The airline said that it’s seeing a sustained domestic recovery, driving strong cash generation.
Qantas expects to be statutory free cash flow positive in the second half of FY21. Jetstar generated positive underlying EBIT (EBIT explained) in April. Qantas Loyalty has returned to earnings growth in the second half of FY21. Freight also continues to do well in this environment.
The airline also said that it’s expecting to report underlying EBITDA (EBITDA explained) of between $400 million to $450 million in FY21. Qantas is expecting revenue to double between the first half and the second half of the financial year.
However, it’s still forecasting a statutory loss before tax of more than $2 billion in FY21. That includes significant costs associated with previously announced redundancies, aircraft writedowns and non-cash depreciation charges. But Qantas’ recovery program is on track to deliver $600 million of ongoing cost reduction in FY21.
In terms of the balance sheet, Qantas said that its net debt has peaked and it’s now starting to decline. The ASX travel share said that it has strong total liquidity position of $4 billion. That liquidity includes cash of $2.4 billion and $1.6 billion of undrawn debt facilities.
Other elements that could affect the Qantas share price
Qantas revealed that the corporate travel segment is now at 75% of pre-COVID levels, up from 65% in April. Leisure demand is growing strongly, with deferred international holidays converting into multiple domestic trips.
It also said it’s on track to reach 95% of its pre-COVID domestic capacity in the fourth quarter of FY21. Qantas and Jetstar expect to average 107% and 120% respectively of their pre-COVID domestic capacity in FY22. All domestic aircraft have been brought back into service.
Qantas is on track to reach at least $1 billion of annual cost reductions by FY23.
Summary thoughts on the Qantas share price
Qantas has definitely turned a corner. It’s going to take a while to repair the balance sheet, but the domestic demand should help a lot over the next 12 months.
The airline could be worth looking at with how strongly the local recovery is. But international travel could be very limited for some time.
There are plenty of ASX tech shares that also look very interesting.
