Re-iterated ‘Buy’: Qantas Airways Soaring Above the Competition with Structural Strength and Growth Momentum

Key Takeaways: We are re-iterating our Buy on Qantas Airways (ASX: QAN) because the group’s diversified, dual-brand strategy continues to deliver strong results. Its mix of premium and low-cost travel, freight operations, and the high-margin Qantas Loyalty business gives it a resilient earnings base. In H1 FY25, underlying profit before tax rose 11% to $1.39 billion, supported by nearly 10% more passengers, showing that growth is driven by disciplined strategy, not just post-pandemic recovery. Looking ahead, the fleet renewal program, with new fuel-efficient Airbus A220s and A321XLRs, is expected to lower unit costs and improve margins over time. With net debt stable at $4.1 billion, $250 million in base dividends, a $150 million special dividend, and $431 million in share buybacks, management is clearly confident in future cash flows. Combined with its 61–62% domestic market share and growing 17-million-member loyalty base, we believe the market hasn’t fully priced in these advantages, making Qantas a compelling long-term buy at our $12.20 price target. --- Qantas Airways’ (ASX: QAN) real strength lies in a sophisticated, integrated portfolio. The group operates four key divisions: 1) premium Qantas Domestic and Qantas International, 2) Freight carriers, 3) the low-cost Jetstar Group, and 4) the high-margin Qantas Loyalty business. Its primary competitive advantage, a formidable “dual-brand moat,” underpins its domestic strategy. By deploying the full-service Qantas brand alongside budget-focused Jetstar, the group effectively captures the full spectrum of Australian travellers, from corporate executives to price-sensitive tourists. This strategic segmentation has allowed the group to command an estimated 61–62% of the domestic market, translating into exceptional pricing power that enables it to capture over 80% of the total domestic profit pool. This market structure is complemented by the Qantas Loyalty division, a counter-cyclical and growing earnings driver that has evolved into a broad coalition program, creating a powerful ecosystem that significantly increases customer stickiness across the entire group. Strong Results and Fleet Renewal Signal a New Phase of Profitable Growth and Shareholder Returns Our decision to re-iterate a Buy recommendation is underpinned by clear evidence of a successful operational turnaround and a compelling, forward-looking strategy that we believe is not yet fully appreciated. First-half FY25 results validate the group’s earnings power, with Underlying Profit Before Tax rising 11% to $1.39 billion on the back of robust travel demand, with passenger numbers up nearly 10%. This is not merely a post-pandemic recovery; it reflects disciplined strategic execution. Looking ahead, the comprehensive fleet renewal program represents a significant catalyst for long-term margin expansion. The introduction of new-generation, fuel-efficient aircraft such as the Airbus A220 and A321XLR is set to structurally lower the group’s unit cost base while enhancing the customer experience. Management’s confidence is also underscored by the reinstatement of a substantial dividend and an active share buyback program, signalling strong belief in sustainable future cash flows and a renewed focus on shareholder returns. A Compelling Investment Case Backed by Structural Advantages and Future Efficiency Gains That said, the investment thesis is straightforward and compelling. Qantas’s solid domestic market position provides a stable and highly profitable foundation, while the high-margin loyalty business offers a valuable, diversifying earnings stream. Strong first-half FY25 results confirm the group’s operational and financial health. When combined with the long-term margin improvement potential from its multi-year fleet renewal, these factors create a powerful case for investment. We believe the market underappreciates this confluence of structural advantage and future efficiency gains, making this an opportune moment to re-iterate a Buy.

The Australian aviation industry presents a compelling picture of consolidated strength, creating a favourable environment for its dominant player. The domestic market, effectively a duopoly where the Qantas Group transports the vast majority of passengers, is projected to grow from $4.14 billion in 2025 to $4.46 billion by 2030. This structure provides significant pricing power and a formidable barrier to entry. Globally, while passenger growth moderates to a healthy 5.8% for 2025, persistent aircraft delivery delays from manufacturers act as a cap on industry-wide capacity. This paradoxically benefits established airlines like Qantas by preventing oversupply and supporting higher passenger yields, creating a disciplined market by default that supports our investment thesis. Earnings Power and Profitability Take Flight on Strong Passenger Demand, with Dual-Brand Strategy Delivering Resilient Domestic and Loyalty Revenue Streams - H1 FY25 Underlying Profit Before Tax rose 11% to $1.39 billion. - Revenue increased 9% to $12.13 billion, driven by 28.3 million passengers. - Group Domestic division delivered an Underlying EBIT of $916 million. - International segment saw a 7% decline in unit revenues, reflecting competitive pressure. - Qantas Loyalty business grew active members by 11% to 17 million and is on track for full-year EBIT growth of ~10%. - Overall, the diversified earnings base provides a reliable engine for growth and shareholder returns. A Fortress Balance Sheet and Generous Capital Returns Reflect Management Confidence in Sustainable Cash Flows and Shareholder Value Creation - Net debt remains stable at $4.1 billion, well within the target range, despite fleet renewal investments. - Board approved a $250 million base dividend and a $150 million special dividend. - Share buyback program retired $431 million in stock during H1 FY25. - Strong balance sheet and disciplined capital allocation signal confidence in future cash flows and shareholder value. Valuation Suggests a Compelling Opportunity for Re-rating as Market Undervalues the Long-Term Benefits of Qantas’s Structural Advantages and Loyalty Segment Growth Our discounted cash flow analysis yields an intrinsic value of $12.50 per share, supported by assumptions of margin expansion to a sustainable 13% driven by fleet efficiencies and growth of the high-margin loyalty segment. Comparatively, Qantas trades at an enterprise value to EBITDA multiple of around 5.8x. While this is a premium to some challenged European carriers, it remains below major US peers. We believe this premium is justified by Qantas’s structurally advantaged domestic market and the stabilizing influence of its non-cyclical loyalty business. Our analysis suggests that the market has not yet fully priced in the long-term benefits of its strategy, supporting our price target. The technical picture provides strong, independent confirmation of our fundamental view. The stock is in a well-defined long-term uptrend, trading near all-time highs, a classic signal of strong momentum and positive investor sentiment. Key indicators like the Relative Strength Index and moving averages are firmly in bullish territory but are not yet indicating overbought conditions, suggesting sufficient momentum for further advancement. This solid technical backdrop, combined with the robust fundamental picture, supports our BUY rating and our price target of $12.20.