Virgin Australia Holdings Ltd (ASX: VAH) has now gone into administration. Is the Qantas Airways Limited (ASX: QAN) share price a buy?
I'm not surprised that the Qantas share price is higher today (at the time of writing).
Firstly, don't count Virgin out just yet. At the moment it has only gone into administration, it's not gone bust yet. I think it's unlikely that the entire Virgin business will saved, but it's possible that large profitable sections of it could be saved – particularly if a buyer comes in.
But this is a very big moment for Qantas' long-term earnings and the Qantas Airways share price.
Does this favour Qantas?
The coronavirus has obviously caused havoc for the travel industry including airlines. That part of the problem isn't going to be resolved any time soon. Virgin wouldn't be in trouble if air travel was still going on as normal. But the debt was too much to survive with.
Qantas now has two big factors in its favour for the longer-term.
The first is that its main Australian competitor is now likely to be much weaker and/or smaller, maybe it will disappear altogether (but hopefully not). Qantas will have the power to increase prices a bit without the danger of competition taking market share.
The second factor is that oil prices are extremely low. Obviously Qantas' planes aren't doing much flying at the moment to fully take advantage of the situation. But it could load up on petrol which will help future earnings. And the oil price is predicted to remain lower for quite a while due to so little demand and a lot of pent up supply.
Is the Qantas Airways share price a buy?
Qantas is certainly a high-risk idea at this point. We don't know how long the travel restrictions will remain in place. But, with Australia's coronavirus numbers looking so good it would appear that Australia may be able to eradicate it entirely and therefore open up domestic facing businesses and domestic travel much sooner than could have been realistically hoped.
For brave investors, I think Qantas could be a buy with a multi-year timeframe in mind. But there could be more volatility to come.
