ASX200: Qantas Group H1 FY23 earning preview

ASX-listed airline Qantas Group could see improvement in earnings in its first half FY23 results, as travel demand recovers following the removal of Covid-related movement restrictions both domestically and internationally.

When will Qantas report its latest earnings?

Qantas will report its first half FY23 results on Thursday, 23 February.

What should traders look out for

First founded in 1920, Qantas is the world's second oldest airline still in operation, as well as Australia's largest airline in terms of fleet size, international flights and international destinations.

Qantas expects a profit boost on the back of a sizeable recovery in demand for both domestic and international air travel, as Australia and other nations dial back Covid-related flight restrictions.

In late November, Qantas upgraded its profit expectations on the back of continued strength in travel demand during the second half of 2022.

At the time of the announcement, Qantas expected underlying profit before tax to sit between $1.35 billion and $1.45 billion, for an increase of $150 million compared to the profit range outlined in early October.

'Consumers continue to put a high priority on travel ahead of other spending categories and there are signs that limits on international capacity are driving more domestic leisure demand, benefiting Australian tourism,' Qantas said.

This upgrade to profit expectations arrived despite expectations of record fuel expenditures for FY23, even as international flight capacity remained well below pre-Covid levels despite the rebound in demand.

'Fuel costs remain significantly elevated compared with FY19 and are expected to reach approximately $5 billion for FY23, which would be a record high for the Group despite international capacity at around 30 per cent below pre-COVID levels,' the airline said.

Analysts anticipate strong H1 FY23 results

Analysts from Goldman Sachs see Qantas posting a strong performance this earnings season, given the upbeat results already reported by the airline's international peers.

'US airlines' 4Q results also reflected strength in pricing in the current environment, with American Airlines, Delta Airlines and United Airlines unit revenue averaging +19% vs. pre-covid level in the quarter,' a note from Goldman said.

Goldman expects Qantas to safely achieve its underlying profit before tax target of between $1.35 billion and $1.45 billion.

Qantas's share price has already risen more than 23% over the past year, as the recovery of international travel demand gave a boost to its business performance.

This recovery is likely to further continue in its home market of Australia, as the volume of inbound migrants and visitors steadily increases.

Share buyback in FY23 expected

Analysts expect Qantas to take advantage of robust profits and a strong balance sheet to pursue a share buyback.

Goldman anticipates a $400 million share buyback in the second half of FY23, which could be unveiled as part of the H1 results.

Analysts from Morgans share the same expectation of a $400 million share buyback, due to the strength of the airline's balance sheet.

'QAN's balance sheet strength positions it extremely well for its upcoming EBIT-accretive fleet reinvestment and further capital management initiatives (forecasting a A$400m on-market share buyback to be announced at 1H23 result),' Morgans analysts said.

In its November update, Qantas announced that it had completed 76% of the $400 million share buyback announced in August 2022 at an average price of $5.66.

'Low levels of net debt put the Board in a position to consider future shareholder returns in February 2023 consistent with the Group's financial framework and phasing of capital expenditure for fleet renewal,' Qantas said.

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