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Qantas Ltd: FY22 result remains heavily impacted by COVID-19

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge 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$8.5 billion.

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What is Qantas’ response to the lock down in Sydney?

Qantas has announced that around 2,500 frontline Qantas and Jetstar employees will be stood down for an estimated two months in response to ongoing COVID outbreaks in Sydney, Brisbane and Melbourne. Qantas considers that this stand down is a temporary measure to deal with a significant drop in flying caused by COVID restrictions in Greater Sydney in particular and the knock-on border closures in all other states and territories.

 

What is the outlook for Qantas?

Qantas provided earnings guidance for FY21 on 20 May 2021. At that time, Qantas noted that domestic recovery in air travel is driving strong cash generation. As a result, Qantas expects in FY21 underlying EBITDA of $400-450 million and a statutory loss before tax of more than $2 billion in FY21. Qantas is due to report its FY21 earnings on 26 August 2021.

The outlook for FY22 is deteriorating. The market was expecting a full recovery in domestic capacity in FY22. However, the COVID outbreak in Greater Sydney in particular means that full recovery in domestic capacity may not occur until FY23.

Qantas is currently assuming that a phased return of material international flying from late December 2021 onwards. This assumption remains in doubt as the vaccine rollout is going slower than expected.

Consequently, in the current environment, the outlook for Qantas’ FY22 earnings is highly uncertain and Qantas may not return to profitability until FY23 instead of FY22 as previously expected. The only positive is that once borders do reopen, domestic travel tends to come back quickly.

 

How is the market reacting to the recent COVID outbreaks?

The Qantas share price has been very resilient notwithstanding the recent COVID outbreaks, falling from around $4.90 to $4.50 over the past month. This is suggesting that the market is expecting that the Greater Sydney lockdown will end by end-September 2021. If this expectation changes, this this will most likely impact on the Qantas share price. It will be interesting to see whether Qantas provides any earnings guidance for FY22 when it releases its FY21 profit result on 26 August 2021.

 


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 purposes 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 proceedings. 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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