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Qantas share price: What's the outlook as FY20 profits collapse 91%

We examine the highlights from the blue-chip airline’s full-year results and fiscal 2021 outlook.

QAN Source: Bloomberg

Qantas share price rises then dips on FY20 release

The Qantas (QAN) share price opened higher before declining by the late morning on Thursday, after the airline released a weak – though evidently already priced-in – set of full-year (FY20) results to the market.

Overall, the airline reported a significant hit to both revenue and earnings as a result of the coronavirus pandemic, though management remains optimistic that demand will return – both domestically and internationally – in the coming years.

In the lead up to today’s results, investors bid the stock higher, with the Qantas share price rising 4.44% – to $3.67 per share, over the previous five sessions.

QAN last traded at $3.67 per share, down 2.39%.

Full-year results unpacked

On the top line, Qantas reported total revenues of $14,257 million, representing a year-over-year decline of 21% – a result attributed to the pandemic and government mandated border closures.

On a more granular level, Qantas saw its domestic revenue fall 23%, international and freight revenue drop 18%, Jetstar revenue plunge 24% and Qantas Loyalty revenue crash 26%.

On the bottom line, QAN reported a statutory loss before tax of $2.7 billion, driven primarily by non-cash write-downs, including: Non-cash fleet write-downs totalling $1.4 billion and one-off restructuring costs totalling $642 million.

Underlying profits came in at $124 million – down a staggering 91% on a year-over-year basis.

By the close of FY20 the group had $4.5 billion in total available liquidity; against net debt of $4.7 billion – a figure which sits at the lower end of the Group's target range.

Qantas share price: the outlook at a glance

Looking forward, some of the key points highlighted in today's FY20 release include:

  • The expectation that domestic capacity will reach 20% of pre-covid levels in August 2020.
  • Recent sales activity points to positive pent up demand for domestic travel, with the airline noting that 95% of Qantas frequent flyers intend to travel domestically within the next year.
  • On the other hand, it was flagged that international travel is 'unlikely' to resume until mid-2021. Trans-Tasman travel may resume earlier, it was noted.
  • Positively, domestic demand for Qantas Freight is 'expected to remain strong due to growth in e-commerce.’
  • The airline expects FY21 fuel costs to come in lower than in FY20, which came in at $2.9 billion.

Commenting on the outlook, Alan Joyce, the Qantas CEO, reassuringly said:

'We're in a good position to ride out this storm and make the most of the recovery. Our market position is set to strengthen as the only Australian airline with a full service and low fares domestic offering as well as long haul international services.'

Mr Joyce said the airline expects another ‘significant’ loss in fiscal 2021.

Other bits and pieces

Interestingly, as analysts from Ord Minnet pointed out in the wake of these results:

‘Qantas recently stated its outlook for average domestic capacity of ~70% in FY21 and 100% in FY22; this has not been reiterated.’

Moreover, with the airline not expected to resume international flights until mid-2021, Ord Minnett analysts said that ‘this would make achieving its previously targeted ~50% of capacity in FY22 challenging.’

Ord Minnet currently has a Hold rating and $3.50 price target on the stock, implying potential downside from current price levels.

How to trade Qantas, long or short

Are you bullish or bearish on Qantas following the airline’s FY20 results? Whatever your view, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

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

  1. Create an IG Trading Account or log in to your existing account
  2. Enter 'QAN' in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

The information 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 Bank S.A. 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 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. See full non-independent research disclaimer.

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