Qantas Airways Ltd (ASX: QAN) has been a key stock in the industrial sector with ability to position itself for growth and sustainable returns. It has been on track for returning over $2.6 billion to shareholders since October 2015. Lately, the group’s Chairman Leigh Clifford indicated to step down from the national carrier in October 2018 and this will break his 11 years’ association with the group. Meanwhile, Richard Goyder will assume the role. The group also intends to depict key insights on operations during its AGM on 26 October.

The group has witnessed key transformative periods with profitability settling in alongside investors’ returns. It has been also targeting ongoing transformation gross benefits of $400 million per annum. The whole landscape of operations has made Qantas an iconic Australian company among key performing airline groups. The group seems to have dodged the view that airlines will lead to loss of money only and can’t be a long-term investment play. The key thing to look at is the funding of new aircrafts to stay up to beat and more competitive. However, cost becomes a key aspect to look at. In case of Qantas, the cash flows look in a decent shape given the oil price scenario over the last few years, while the recent changes in prices need to be considered along with cash tax payments that have been slated for FY19 and onwards. However, the benefits in terms of domestic revenue may help the stock. Then, replacing old planes with new ones can be an important move from future perspective. The group lately ordered 6 additional 787-9 Dreamliners for delivery by the end of 2020.

If one looks at the third quarter FY18 trading update, the total revenue has been up 7.5% to $4.25 billion with healthy unit revenue performance in both the domestic and international markets. Despite the rising fuel cost seen lately, the group’s full year underlying profit before tax has been flagged to be in the range of $1.55 billion  to 1.60 billion. The group had recently cancelled buy-back of shares while as at May 2018, the programme was 50% complete.

The group’s Return on Invested Capital has been above  >20% (12 months to 31 Dec 2017) while its segments have yielded ROIC over 10%. Qantas Loyalty programme is also targeting 7-10% CAGR in earnings through FY22. QAN stock moved up 33% this year to date given the developments. We believe that the stock has a long-term potential and maintain a “Buy” at the current price of $ 6.720.


Domestic Market Statistics (Source: Company Reports)

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