The Qantas Airways Limited (ASX: QAN) share price has fallen back over the last couple of weeks. In this article I'm going to look at whether the ASX airline share could be a good buy before it reports its FY23 result.
ASX reporting season is a very interesting time as we get the full lowdown of how the business has performed over the prior 12 months and perhaps what the outlook is for the year ahead.
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Is this a good time to think about the Qantas share price?
FY23 has been a year of very strong demand for Qantas and other ASX travel shares.
However, how many holidays are people going to go on? It has been 18 months of strengthening travel demand with households able to travel again after COVID-19 lockdowns.
There has been a lot of inflation and interest rate rises since borders were lifted. Qantas has made a significant amount of profit, which has helped improve the balance sheet. Some experts believe that the travel demand is going to slow down.
The ABC reported on comments from Gemma Dale, head of investor behaviour at National Australia Bank Ltd's (ASX: NAB) nabtrade, who said:
You've seen real strength in the share price of travel-related companies, because demand is so strong right now.
However, when we look at NAB's consumer confidence surveys, travel is one of the 'top five' things that consumers say they'll cut back on.
There may be some real headwinds for those guys [Qantas and Flight Centre Travel Group Ltd (ASX: FLT)] because consumers are saying, 'I can't afford those overseas holidays from now on'.
And you'd want to look at their numbers, and particularly their outlook statements, to see whether they're looking forward to more strong growth, or whether things are really going to slow down.
Fleet renewal
One of the main things that could be under the spotlight in the upcoming result is a possible announcement about Qantas renewing its fleet, which is getting old. The size of the bill could be a factor for the Qantas share price.
According to reporting by the Australian Financial Review, the incoming Qantas CEO Vanessa Hudson recently said it would start the process to replace 24 of its ageing A330 aircraft in the second half of 2023.
Following the lull of COVID-19, there is now an imbalance between demand for places and supply from Boeing and Airbus.
The AFR reported on comments by Anthony Longo that Qantas could keep achieving strong yields from its flights, while the Qantas loyalty division could keep performing with resilience as well, and the balance sheet was strong enough to renew the fleet and return cash to shareholders:
We are of the view Qantas' fundamentals are unquestionably strong and aided by a rational domestic market and supply side constraints which are likely to keep airline yields high. Additionally, Qantas Loyalty remains resilient, generating earnings growth and strong cash flow.
Qantas is targeting net debt of $2.7 billion to $2.9 billion for June 2023. With adherence to its financial framework, we believe this is strong enough to not only fund fleet refresh capex but also regular capital management.
However, if travel demand falls and Qantas has to spend big on new planes then it may not be as rosy as Longo is expecting. Time will tell which way the winds blow on this one.
