Why the Qantas share price soared 40% in FY23

It has been an incredible year for the airline.

| More on:
A group of travellers run excitedly to the airport gate.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Huge travel demand has driven the Qantas share price and earnings
  • Underlying profit before tax for FY23 is expected to be between $2.425 billion to $2.475 billion
  • The strong earnings enabled the business to fund huge share buybacks

The Qantas Airways Limited (ASX: QAN) share price jumped around 40% in FY23, significantly outperforming the S&P/ASX 200 Index (ASX: XJO).

As we can see on the chart below, the ASX airline share kept rising for the first nine months of the financial year and then was essentially flat, though there was some volatility.

Most of the year was defined by strong travel demand and an improving financial position for the company. Let's remind ourselves of how much strength the business saw.

Demand and profit recap

In October 2022, the company said domestic travel remained "strong" across all categories. The revenue from domestic leisure was more than 130% of pre-COVID times. The business was initially expecting to generate underlying net profit before tax (NPBT) of between $1.2 billion to $1.3 billion for the first half of FY23.

In November 2022, the ASX travel share increased its underlying profit before tax range by $150 million to guidance of between $1.35 billion to $1.45 billion. The airline said consumers were continuing to put a high priority on travel ahead of other spending categories and there were signs that limits on international capacity are driving more domestic leisure demand.

The FY23 first-half result revealed underlying profit before tax of $1.43 billion. This was at the top end of its upgraded guidance, thanks to "consistently strong travel demand, higher yields and cost improvements". It said that leisure demand continued to lead the recovery, which has seemingly been a major support for the Qantas share price.

For the second half of FY23, the airline said group domestic capacity was expected to increase from 94% to 103% and international capacity was expected to increase from 60% to 81%. Fares were expected to moderate as capacity increased but would remain "significantly above FY19 levels".

In May, the company noted it was expecting underlying profit before tax to be $2.425 billion to $2.475 billion, thanks to "continued strong travel demand". It slightly increased its expectations of group domestic capacity to above pre-COVID levels at 104% (up from 103%) by the end of the second half.

At the end of June, Qantas gave an 'industry update' and said that "travel demand remains strong and data shows that consumers continue to prioritise travel over other spending categories". The airline said it remained on track to deliver the financial performance for FY23 outlined in the May update.

Share buyback

Another factor that may have helped the Qantas share price was the company investing hundreds of millions of dollars in a share buyback.

In early FY23, it announced a share buyback of up to $400 million. Low levels of net debt "put the board in a position" to consider more capital allocation for share buybacks later in the year.

In the HY23 result, it announced an additional $500 million share buyback.

Then, in May, it increased the $500 million share buyback by another $100 million.

The huge share buybacks in FY23 are supportive of the Qantas share price because the company is increasing on-market demand for Qantas shares. It is also boosting metrics such as earnings per share (EPS) and return on equity (ROE).

Qantas share price valuation

The profit that investors are expecting can have a significant impact on what the market thinks a share price is worth.

Based on the Commsec estimate, the FY23-ending valuation meant the Qantas share price was priced at under 10x FY23's estimated earnings.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Travel Shares

Bored woman waiting for her flight at the airport.
Travel Shares

Why are Web Travel shares tumbling 6% today?

Its suspension is over. What's going on with this travel stock?

Read more »

A woman looks up at a plane flying in the sky with arms outstretched as the Flight Centre share price surges
Travel Shares

The Qantas share price has flown 66% higher in 2024, this top broker thinks it can gain more altitude

Qantas shares may not be finished rising.

Read more »

a man holds his arms out and shrugs his shoulders as if indicating he doesn't know the answer to a question he's been asked.
Travel Shares

Why is Web Travel stock such a hot topic today?

This travel stock isn't going anywhere today. Why isn't it moving?

Read more »

Man sitting in a plane seat works on his laptop.
Travel Shares

Why this ASX travel share is grounded two days before results

Investors now wait in anticipation.

Read more »

A corporate-looking woman looks at her mobile phone as she pulls along her suitcase in another hand while walking through an airport terminal with high glass panelled walls.
Travel Shares

This ASX travel share is 'going to take off' after falling 30%

Back your bags.

Read more »

A woman sits crossed legged on seats at an airport holding her ticket and smiling.
Travel Shares

Down 23% in a month, why this ASX 200 stock is an 'attractive opportunity'

After falling hard, a top fund manager is seeing an opportunity with this stock.

Read more »

A line of people sitting at a long desk in an annual general meeting
Travel Shares

Why today is a big day for Flight Centre shares

Why is everyone talking about Flight Centre shares today?

Read more »

A woman reaches her arms to the sky as a plane flies overhead at sunset.
Travel Shares

Why this fund manager still thinks Qantas shares are a cheap buy

One expert still has a lot of belief in Qantas shares.

Read more »