Think its time to retire the "Will Qantas survive" thread for something more pertinent. The COVID bankruptcy threat is long gone (but not its balance sheet effects).
Qantas new emerging threat is a falling demand from a massive consumer downturn. The RBA is predicting reductions in cash flows for nearly 94% of Australian households for a rise of the base rate to 3.6% in 2023:
Financial future markets are now suggesting a push above 4% even likely during 2023 due to continuing inflation and RBA commentary as of 07 Feb. The impact on Australian consumers is going to be huge. 800,000 Australian mortgages are going to come off low fixed rates from 2021 to far higher floating rates at 6%+ (from as low as 2.15%) and they are going higher still with at least two more if not three 25% BPS rises this year by the RBA to fight inflation.
The average Australian mortgage is $600,000, and a rise from 2.5% to only 6% sees nearly $1,500 a month on extra payments. That's a massive disposable income squeeze on 800,000 households this year. Never mind all those on flexible already suffering. Financial analysts have been warning of this for months and it seems the media has finally cottoned on. 2024 will see similar numbers of fixed mortgage holders having to move to far higher floating rates
The RBA had forecast over 50 per cent of households with a fixed-rate mortgage expiring in 2023 face an increase in mortgage repayments of 40 per cent or more, with rates before Tuesday's additional rise!
Defaults will be inevitable and refinancing an issue with falling house prices. Things are going to get ugly for disposable incomes, if they wee not already.
Leisure travel accounts for about 65-85% of domestics flight bookings in Australia (business obviously more lucrative so higher than that share of revenue). Only about 5% of overseas travel to Australia is business, a little more going out.
That's a massive tightening of demand for Qantas during 2023/24 that the market does not appear to be accounting for in forward valuations of Qantas.
Recent BITRE data shows the “best discount airfare” index dropping from a position of 112 points in December to 74.5 points in January.
Qantas enjoyed a wonderful purple patch with pent up COVID demand and constrained supply in 2H CY22 which it was able to charge exorbitant fares for a questionable and well reported drop in flight service standards. Hence its brand reputation has dropped considerably:
It will shortly announce exceptional earnings for the 2nd half of the 2022 calendar year. Its guidance for 2023/24 may stretch credibility given the massive Australian consumer implosion already emerging.
Retail investors buying Qantas shares in hopes of a return to dividends need to take a good look at its balance sheet. It will only just announce positive shareholder equity for the first time in years and a share buyback whilst the company was yet to formally report positive shareholder equity was nothing short of reckless balance sheet management 101 that none in the financial media seemed to care about.
It was only three years ago that the US airlines were asking the US government for loans to stay solvent, which almost exactly matched what they recklessly spent on share buybacks post 2008. Per the beginning of this thread, the threat of COVID led bankruptcy has gone. But the after effects have not. The share buyback Alan snuck in to get his share payments over the line before retirement was at the expense of balance sheet health. It eroded the buffer Qantas would have had to possible see it comfortably through this coming sustained downturn in consumer demand.
QAN Price at posting:
$6.55 Sentiment: Sell Disclosure: Not Held
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