I am not a big fan of technicals. But this looks interesting....

I am not a big fan of technicals. But this looks interesting. Holding well above the 200 SMAVG line - RSI oversold. Might be a good opportunity to top up! Otherwise some food for thought.

Wait and see approach to international
QAN has seen strong demand since the two-way trans-Tasman bubble was announced. QAN continues to plan for the reopening of international borders and the resumption of international flights in late October (beyond flights between Australia and New Zealand), however acknowledges international remains contingent on Australia's vaccine roll out We have FY22E international ASK at 45% of pre-pandemic levels. Delays in vaccine roll out and extended border closures may see our capacity estimates come under pressure. Source BofA.

Are international delays bad?
Interestingly with the increased domestic flying we believe short term this isn’t the worst outcome for Qantas. Domestic flights are circa 3x the margin of international flights and we note nearly 11 million trips were made overseas in FY19. If these converted to a domestic flight each instead, the domestic market could grow ~17%. Source: CITI

Lower margin
We believe however the extra capacity will come at lower margin, as the company focuses on cash flow positive flying for longer. As a result we bring back our margin assumptions which drive the majority of our revisions. Source: CITI

Our take
Investing in Qantas long term has always been about how the carrier would emerge from the pandemic. We are beginning to see early signs that competition is being rational, and Qantas is emerging with a differentiated offering. In particular we see competitors closing lounges, not flying international which has implications for loyalty and corporate and a slimmed down narrow body fleet means lie-flat business seats can’t be offered. As a result we remain Buy rated, as we think the company is in a good place to increase market share and come out in a better competitive position on the other side. Source: CITI