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Qantas Ltd – Qantas Group Update On COVID-19 Response

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Qantas Ltd (ASX: QAN) is the market leader airline operator in the Australian domestic market and a significant airline operator in the international market. Qantas has a market capitalisation of A$5.43 billion.

 

 

Updates on Corona Virus

The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. Since then, there has been 132,758 confirmed cases and 4,955 deaths globally. COVID-19 has spread to many countries around the world. However, the main countries effected is China, South Korea, Iran, Japan and Italy. As of Thursday (12 March 2020), the World Health Organisation declared COVID-19 a pandemic.

 

What is the Update on Qantas share price?

In the last month, Qantas share price has fallen by 50%. Qantas is currently trading at A$3.18. The downward trend is due to the COVID-19 outbreak directly affecting travel demand globally.

 

How COVID-19 effects Qantas

Qantas announced further cuts to its international flights and is planning to reduce capacity by nearly a quarter for the coming six months. The cuts follow the spread of the COVID-19, most notably in Europe and North America as well as its continued spread throughout Asia. Consequently, this has resulted in a significant drop in international travel demand. The changes will feature a total international capacity reduction for Qantas and JetStar of 23%. The biggest capacity reductions will remain in Asia (down 21%), the United States (down 19%) and Trans-Tasman (down 10%). However, rather than exit routes altogether, Qantas will use smaller aircraft and reduce the frequency of flights to ensure connectivity throughout the globe.

On a positive note, a material drop in fuel price has provided the airline with a significant cost benefit alongside the saving from lower consumption. More specificity, Qantas’ total fuel cost is expected to be A$3.74 billion and further falls in Brent crude prices are expected.

 

What is the outlook for Qantas?

Given the uncertainty of the situation, Qantas’ management has said it is unrealistic to provide a meaningful guidance this time on the impact on Qantas earnings for the remainder of FY20. However, Qantas still maintains strong earnings, with low debt levels and a long debt maturity profile, A$1.9 billion in cash alongside a further A$1 billion in undrawn facilities and A$4.9 billion in unencumbered assets. To assist the airline to maintain its position in the market, the Board has immediately decided to cancel the off-market buyback announcement in February 2020, which will preserve A$150 million in cash. Furthermore, the interim dividend of 13.5 cents per share will be paid on 9 April 2020.

Despite Qantas’ share price being down 50% over the past month the airline still maintains a strong financial position and has the mechanisms in place to bounce back once COVID-19 has passed.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

 

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