As one of the past year's best-performing stocks Qantas Airways Limited (ASX: QAN) has more than tripled in value in under two years as a cost-cutting program and fuel bill at five-year lows combine to produce a staggering profit uplift.
Today the airline announced it is to resume direct flights to San Francisco from Sydney Airport – the business operated by Sydney Airport Holdings Ltd (ASX: SYD). This development is possible due to the Australian Competition and Consumer Commission's (ACCC) approval for the continuation of an alliance between Qantas and American Airlines.
The ongoing alliance will see American Airlines take up some slack on Sydney-Los Angeles services, to allow Qantas to start flying direct to San Francisco up to six times per week come January 2016.
Qantas reckons avoiding the outdated LAX airport will allow those transiting through San Francisco to save up to four hours.
International travellers will have noticed the trend towards alliances and consolidation in the airline industry recently that is largely a symptom of restrictive rules around foreign ownership designed to protect local airlines.
The airline industry has long had global system of controls, regulation and multi-lateral agreements designed to support the national carriers of sovereign nations. This explains the requirement for the ACCC just to approve the extension of Qantas' alliance with American Airlines.
Qantas' biggest strength is its brand and the airline is delivering on a brutal cost-cutting program designed to realise $2 billion in benefits by financial year 2017. It recently posted a half-year underlying profit before tax of $367 million, with talk of a dividend payment encouraging investors to bid the stock ever higher over the last six months.
High costs of capital and over-capacity in the airline business mean Qantas is probably not a great long-term investment though.
The best long-term investments are those that offer value, income and the prospect of steady capital appreciation over the long term.
