Qantas share price: where next following latest market update?

We look at the highlights from the airline’s latest market update.

Latest market update in focus

The Qantas share price (ticker: QAN) surged on Thursday, after the airline said, as part of a new market update, that it expects to be free cash flow positive in the second half of FY21 and that it is on track to book underlying earnings (EBITDA) of between $400 to $450 million for the full-year.

Key point: That EBITDA guidance has been made on the assumption that there will be no further lockdowns or extensive travel restrictions.

Qantas share price: The stock was up 3.65% at the time of writing, to $4.68 per share, off the back of this market announcement.

Background: Airline and travel stocks were some of the worst hit during the height of the pandemic, as a result of significant ambiguity around the breadth and length of the pandemic, and ultimately, its fundamental impact on companies.

While ambiguity remains, particularly around factors such as when full international travel will resume, today’s market announcement from Qantas paints a positive picture of a company in ‘turnaround mode’.

Though it should be noted that the airline still expects to book a after tax loss of approximately $2 billion for the full-year, as a result of redundancies, write-downs and deprecation charges.'

Other things to consider

Overall, the airline said that it has retained a robust liquidity position, with $4.0 billion in total liquidity available, made up of both cash and debt; while also noting that 'Net debt has peaked and starting to decline.' At its height, group net debt stood at $6.4 billion.

Elsewhere, the airline's recovery program has already driven $600 million in cost savings in FY21 and management noted that the program was tracking well to meet previously guided cost reductions of $1 billion by FY23.

Media response: One part of these cost redundancies that have attracted media attention was the reveal of a two year wage freeze. Here the airline noted that the wage freeze would apply to the 'next round of enterprise agreements across the group' and that management would also be subject to the freeze.

More positively, the airline said it was currently on track to hit 95% domestic travel capacity (against pre-COVID levels) in the fourth quarter of FY21. In fiscal 2022, the airline expects its Jetstar and Qantas businesses to hit pre-COVID domestic capacity levels of 120% and 107%, respectively, suggesting high levels of anticipated pent up demand.

Finally and speaking to the dynamic situation, management noted that previous assumptions around the return of substantial levels of international travel had been moderated somewhat, previously thought to be around October but have now been pushed back to December.

CEO comments: ‘We've adjusted our expectations for when international borders will start opening based on the government’s new timeline, but our fundamental assumption remains the same - that once the national vaccine rollout is effectively complete, Australia can and should open up.'

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