The Qantas Airways Limited (ASX: QAN) share price fell 5% after profit fell in the FY24 first half result.
Qantas HY24 result
Here are some of the highlights from the first six months of FY24:
- Underlying profit before tax dropped 13% to $1.25 billion
- Statutory net profit after tax (NPAT) declined 13% to $869 million
- Statutory earnings per share (EPS) fell 4% to $0.52
- Additional on-market Qantas share buyback of up to $400 million
Breakdown
The company said lower fares contributed to reduced revenue per available seat kilometre (RASK) which impacted profit by $600 million, while freight yields fell by $146 million. This was mostly offset by the contribution from increased flying of $485 million and an unwinding of transition costs from the post-COVID restart of $179 million.
Qantas domestic saw pent-up demand moderate, though revenue still rose 3% to $3.76 billion. Higher costs from customer investments, temporary costs relating to planes, and inflation led to underlying EBIT for this division falling by 18% to $641 million.
Qantas International (including freight) saw revenue rise by 14% to $4.34 billion, with pent-up demand moderating here too. Unit cost performance improved as capacity restored, but returning aircraft to service has led to higher costs, but also means expansion of network breadth, frequency and operational resilience. Underlying EBIT sank 31% to $322 million.
Jetstar saw revenue rise 19% to $2.49 billion and underlying EBIT jumped 84% to $325 million. Demand here remains strong, with fares moderating as capacity returned in Jetstar Australia. Jetstar Australia saw strong leisure demand, and it also added new routes.
Qantas Loyalty saw a 24% rise of revenue to $1.27 billion, while underlying EBIT increased 23% to $270 million. The airline said members continue to prioritise travel over other spending categories. Bookings continue to grow, and Qantas Insurance saw 2.5x more insurance policies compared to home and motor products in HY24 compared to HY23. The company added more than 1 million Qantas frequent flyers (QFF) over the last 12 months.
The bigger the Qantas loyalty profit, the more it can positively affect the Qantas share price.
Fleet update and balance sheet
Qantas said it took delivery of eight new and mid-life aircraft during the FY24 first half as its fleet renewal ramped up. A further 14 aircraft are expected to arrive during the FY24 second half.
The company’s net debt rose to $4 billion at the end of December 2023. This is at the bottom of the target range of between $4 billion to $5 billion, though it’s expected to move to the middle of the range as it use its capital most efficiently.
Outlook for the Qantas share price
Qantas said it’s still seeing strong travel demand across the portfolio. The unit revenue is expected to remain stable for its domestic and continue to normalise for international as market capacity returns.
The FY24 fuel cost is expected to be $5.4 billion at current fuel prices, the FY24 net capital expenditure is expected to be between $3 billion to $3.2 billion.
Qantas also said it’s targeting transformation initiatives, through a mix of efficiency and revenue benefits, of approximately $400 million in FY24 to offset the impact of inflation.
The travel boom seems to be calming down as costs bite into household and Aussies have made up for the lost travel time during COVID-19.
But, travel demand still seems to be good enough for the company to make large profit and invest in winning back customers after recent troubles. I think it could be an underrated buy at this level, but more competition could be detrimental in the long-term. There are other ASX growth shares I’d rather buy.
