Could Qantas shares fly higher in 2024?

Qantas (ASX: QAN) shares have risen from $5.01 on 6 March to $6.22 today, as the major airline enjoys a bounce back from recent lows.

Of course, the company has suffered several torrid years — in 2023, the Australian Competition and Consumer Commission warned it would take the company to court over allegations it charged people for flights that had been cancelled. CEO Alan Joyce subsequently stepped down, though still claimed a $10 million share bonus.

Complaints about poor customer service, weakened culture and failing stakeholder relationships were abundant, but it appears the company may have turned over a fresh leaf.

Qantas half-year results

In 1H24 earnings, underlying profit before tax fell by 13% year-over-year to $1.25 billion, leaving statutory profit after tax also down by 13% to $869 million. Net debt stood at some $4 billion, though the company felt comfortable enough to increase FY25 capital expenditure to between $3.7 billion and $3.9 billion — and this investment is arguably needed given the historical issues.

Qantas also announced an additional on-market share buy-back of up to $400 million, but noted both that there had been a ’significant improvement in customer satisfaction’ and that fares were starting to fall as capacity was normalising.

CEO Vanessa Hudson advised that ‘millions of Australians rely on us, and we’ve heard their feedback loud and clear. There’s a lot of work happening to lift our service levels and the early signs are really positive. Our customer satisfaction scores have bounced back strongly since December, and we have more service and product improvements in the pipeline.’

The CEO also noted that ‘fares have fallen more than 10 per cent since peaking in late 2022. At the same time, we’ve seen a cost benefit from fewer cancellations and delays, and scale benefits as more international flying returns.’

Where next for Qantas shares?

Perhaps a key tailwind for the airline is coming from Perth; the city is a key destination for the airline due to Project Sunrise — whereby Qantas is creating long-haul flights over the next few years, using Airbus A350s which are currently scheduled to start flying in 2026.

The company has recently announced a 12-year agreement which will see Perth Airport invest $3 billion into new terminal facilities and a new runway ready for 2028, and a further $2 billion investment into car parks, roads and a new hotel. Terminals 3 and 4 will create significant additional capacity in addition to gate upgrades to allow for the planned long-haul flights.

For its part, Qantas (and subsidiary Jetstar) is moving all services to a new terminal in the Airport City precinct, and will add a massive 4.4 million seats, per year, to and from Perth by 2031 as the new terminal opens. The parent has also agreed to build a new engineering hangar.

Hudson enthuses that ‘this is the largest airport infrastructure deal in our history. It will enable us to create a world-class western hub and significantly expand our domestic and international services over the short, medium and long term.’

Goldman Sachs has just added the airline to its Asia-Pacific conviction list, which includes what the investment bank considers to be the best opportunities in the region.

It noted that ‘market concerns around: 1) investment in fleet renewal and customer experience, and 2) willingness to return capital to shareholders, is reflected in Qantas trading on 6.4x FY25E P/E versus regional/US peers trading on 9.1x, a discount of 29%. This is more than 2x below the historical 5Y average discount of 14%.’

Expecting this valuation gap to narrow, Goldman has a ‘conviction buy’ rating and $8.05 price target on the airline’s shares. It also expects a not insubstantial 4.9% dividend for FY25, forecasting ‘group EPS of A$0.85, materially ahead of A$0.57 in FY19A, underpinned by the A$1bn cost out program implemented by the business during COVID.’

Qantas shares may move accordingly.

Past performance is not an indicator of future returns.

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