Highly competitive on the other side of the pandemic
Qantas Airways Limited (ASX:QAN)
Qantas shares have retraced around $1 per share over the last 4-5 weeks and we see strong tailwinds for growth and profitability emerging for this business over the coming few years. At current prices, Qantas trades at a discount to valuations of $5.50 – $6.
The business is well capitalised, and both domestic and corporate capacity is returning faster than expected as Australia emerges in the post-COVID-19 environment.
While competitors have been forced to dramatically reduce capacity and close travel routes for their business – Virgin being the best example – Qantas has added 34 additional domestic routes and is utilising part of its grounded international fleet to meet this increased domestic capacity.
Throughout the COVID-19 lockdowns, Qantas has been able to execute some significant cost reductions across the business which would not be possible in a normal operating environment. As travellers increasingly return to domestic travel, and international travel opens up later this year, we expect the business could generate revenues that could exceed pre-COVID-19 levels faster than expected with higher margins. If our thesis plays out as forecast, we should expect excellent capital growth from our entry price and a quick return to the payment of fully franked dividends.
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