The Qantas Airways Limited (ASX: QAN) share price has risen more than 20% over the last six months. I think the ASX travel share can keep flying higher as the industry recovers from COVID-19 impacts.
There are few businesses that saw as much of a demand decline as airlines during COVID-19 with the closure of international borders, and even state borders, with lockdowns.
However, there has been a huge amount of pent-up demand that is now coming through, which Qantas is benefiting from.
I think that the ongoing normalisation of domestic and international demand could mean the Qantas share price is undervalued. Its international capacity is still not back to pre-COVID levels.
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Demand and earnings drive Qantas share price higher
The FY23 first half showed a lot of promising numbers, with underlying profit before tax of $1.43 billion, statutory profit after tax of $1 billion, the net debt declined $2.4 billion, and the statutory earnings per share (EPS) came in at 53.9 cents.
Qantas explained that the drivers of this result were "consistently strong travel demand, higher yields and cost improvements".
Leisure demand is leading the recovery, according to Qantas, while business travel remained "strong". The company is benefiting from freight earnings being above pre-COVID levels, with a permanent increase of e-commerce domestically leading to a "structural shift" in freight volumes and earnings. That sounds like good news for the Qantas share price.
It also revealed that 'Qantas Loyalty', which includes the Qantas points, saw revenue of $1 billion and underlying earnings before interest and tax (EBIT) of $220 million for the half (a 73% rise). It saw a solid increase in bookings via its holidays offers, a 14% rise in Qantas health insurance customers, growth of travel insurance, and so on.
Every single area of the business seems to be doing well, which bodes well for the future in my opinion.
Why I think it can fly higher
In the second half of FY23, the business is expecting domestic capacity to increase from 94% to 103% of FY19 levels, while international capacity is expected to rise from 60% to 81%.
FY23 second-half fares are expected to remain "significantly above" FY19 levels. The most promising thing for the Qantas share price, in my opinion, is that travel demand is expected to remain strong throughout FY23 and into FY24.
I think a return of Asian, American, and European tourists to Australia will be a very useful support for Qantas earnings.
According to Commsec, the business is expected to generate 99.7 cents of EPS in FY24, which would put the Qantas share price at just 6.5x FY24's estimated earnings. Even a forward price/earnings (p/e) ratio of eight could lead to a rise of more than 20% for Qantas.
Shareholder returns like dividends and share buybacks could also be a boost for the Qantas share price.
In a world of uncertainty amid higher interest rates, I think Qantas is one of the ASX shares that can still do well because of pent-up demand and reopened borders, which can help maintain and grow earnings over the next two financial years.
