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What’s the outlook as Qantas secures a further $550m in debt funding?

‘We don't know how long domestic and international travel restrictions will last or what demand will look like as they're gradually lifted,’ said the Qantas CEO, Alan Joyce.

Qantas (QAN) – Australia’s flagship airline – yesterday informed the market that it had secured additional debt funding, that its flight cancellations would go on longer than previously noted and that its balance sheet, even in these unprecedented times, remained strong.

Debt funding secured

'Our ability to withstand this crisis and its aftermath is only possible because we're tapping into a balance sheet that has taken years to build,’ said CEO, Alan Joyce.

Firstly, the airline yesterday announced that it had secured an additional $550 million in debt funding, adding to the $1,050 million in debt that Qantas raised in March.

This new round of debt funding was secured against three of the airline's 'wholly-owned' Boeing 787-9 aircrafts. Should it be required, it was also noted that the airline has $2.7 billion in unencumbered assets that can be used as collateral to raise further debt.

Looking forward, the airline now expects its cash burn rate to hit $40 million per week by the end of June, 2020.

QAN’s net debt now stands at $5.8 billion.

Cancellations extended

Secondly, with much of Australia still in a state of lock-down, Qantas yesterday noted that it would be extending its previously announced domestic and Trans-Tasman flight cancellations up to June 2020; with international flight cancellations being extended into July 2020.

Speaking to the seismic impact the Coronavirus has had on Qantas' business, the airline yesterday revealed that when compared to pre-crisis levels, its domestic network is operating at just 5% capacity; while its international network at a staggering 1%.

As a consequence of this, it was noted that the current stand-down of Qantas employees would be extended until the end of June, at minimum.

The price of hedging

Lastly, though Qantas noted that it collected some losses on its fuel hedging operations during CY20, the airline managed to avoid the worst of the recent oil rout, closing out ‘its over-hedged position through September’ in early-April.

Overall, it was flagged that 'the cash impact of all foreign exchange and fuel hedging between now and the end of September 2020 is a A$145 million cash outflow.’

Qantas share price & an uncertain outlook

Interestingly, off the back of this announcement, investors bid Qantas (QAN) some 1.68% higher during yesterday's session, to $3.62 per share. The Qantas share price opened a shade higher on Wednesday, at $3.640 per share.

Even so, the overall message from this market update was one of uncertainty.

Speaking of the outlook for the airline, the Qantas CEO, Alan Joyce said:

'Our cash balance shows that we're in a very strong position, which under the circumstances we absolutely have to be. We don't know how long domestic and international travel restrictions will last or what demand will look like as they're gradually lifted.'

How long it will take for demand return however remains hard to quantify.

'We're expecting demand recovery to be gradual and it will be some time before total demand reaches pre-crisis levels,’ Mr Joyce added.

How to trade Qantas – long or short

What do you make of this market announcement: do you see a bullish or bearish opportunity? Trade accordingly. You can use CFDs to trade Qantas and other airline and travel stocks – LONG or SHORT through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Qantas, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘QAN’ or ‘Qantas’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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