Can Qantas Share Price Still Be a Market Darling in the Post-COVID-19 Era?

Summary

• While the aviation sector has been the most impacted sector during COVID-19 pandemic, Qantas is already preparing its post-COVID-19 recovery plan.
• The Company shared its three years plan to fast-track its revival from the COVID-19 crisis.
• QAN raised A$1,360 million via institutional placement and A$71.7 million through SPP to accelerate the Group’s recovery, strengthen balance sheet & position itself well for the future.
• Post the capital raise, QAN has bid farewell to the national carrier’s last Boeing 747 jumbo jet.
• Qantas also took steps to ease Frequent Flyers to use their points on domestic and Trans-Tasman flights.

We all are aware that the aviation and travel industries are amongst the most affected industries on a global level due to the travel restrictions imposed by the government of different nations. The airline share prices have suffered from stalled business activities impacting investor sentiment. For Qantas Airways as well, the times have been trying though the Company has adopted several measures to stay afloat.

At present, Australian borders are closed. Only Australian citizens, residents and family members are allowed to travel to Australia. There are minimal flights which are available to and from Australia. Those people who are travelling to Australia are supposed to quarantine themselves for 14 days at a designated facility.

The aviation industry supports Australian businesses and tourism. It generated annual revenue of over A$45 billion and added more than A$18 billion to the Australia economy in 2018. However, travel restrictions due to COVID-19 pandemic resulted in severe disruption to air travels since.

As per the statistics by the Australian Government, Department of Infrastructure, Transport, Regional Development and Communication reported a steep fall in the domestic RPT traffic during 2020. Below is an image to show that.

About Qantas Airways Limited (ASX:QAN)

Qantas Airways Limited has been serving the people for almost 100 years, and every people rely on Qantas Group to take them to different locations. Qantas believes that its success relies on combining day-to-day operational excellence with scanning the horizon.

Qantas is continually transforming to ensure that it is well position for the future. This way, the Company keep creating value for its shareholder.

COVID-19 Impact on Qantas:

In the recent capital raising presentation shared by Qantas Airways on 25 June 2020, the Company highlighted the below challenges faced by it during the COVID-19 pandemic:

• Global airlines adversely impacted by travel limitations and border closures.
• Qantas projected that the Airline sector would face significant structural changes and the near-term outlook remains uncertain.
• It also stated that the domestic demand would possibly recover to regain in FY2022 fully. International revival expected to be slower with only ~50% of capacity anticipated in FY2022.
• Qantas is operational with significantly decreased flight capacity.
• Decisive measures were applied to reduce cash outflow, which includes employee stand-downs, capex delays and dividend withdrawal.
• Used unencumbered assets to raise A$1.75 billion in new debt to improve cash liquidity and retain its credit rating.

DO READ: Travel Players Dealing with COVID-19 Crisis: Capital Raising Catches Wave

Recovery Plan:

On 25 June 2020, the Company shared its plans related to post COVID recovery plan followed by the capital raising.

Qantas shared its three years plan to fast-track its revival from the COVID crisis & create a stronger platform for future profitability, long-term shareholder value as well as safeguard as much job positions as possible.

The plan includes:

• Rightsize the workforce of the Group, fleet, and other costs as per the demand projections with the potential to scale up as flying returns.
• Restructuring of the business to provide continuing cost savings and efficiencies across the Group’s operations in a changing market.
• Recapitalise via equity raising to bolster the financial strength of the Group for recovery and the opportunities it presents.

Through the plan, Qantas Airways targets A$15 billion worth of benefits over the next three years. The plan is in line with the decreased flying activity involving fuel consumption savings and delivering A$1 billion per annum in continuing cost savings from FY2023 via productivity advancements throughout the Group.

The key action plans on this front involve:

• Reduction of the Group’s pre-crisis staff by minimum 6,000 positions across various parts of the business.
• Ongoing the stand down for 15,000 employees, especially those related to international operations, until flying returns.
• Retiring the remaining six 747s.
• Grounding ~100 aeroplanes for up to 12 months, mostly the international fleet.
• A321neo and 787-9 fleet deliveries got delayed meeting the requirements of the Group.

Interesting Read: Green Signal for Travel Sector: ACCC on Regional Routes for Airlines

To know more about the resumption of domestic travelling and recovery in jet fuel demand, click here.

Equity Raising:

On 26 June 2020, Qantas confirmed the completion of A$1,360 million institutional placement and received strong support from the institutional investors as well as new investors. On 10 August 2020, it also completed its share purchase plan and raised A$71.7 million.

The proceeds through the equity raising would be used to accelerate the Group’s recovery, bolster the balance sheet as well as position itself well to take advantage of opportunities associated with its strategy.

Recent Development post Equity raising:

• On 22 July 2020, the Company bid farewell to the national carrier’s last Boeing 747 jumbo jet.
• Qantas took steps to make it easier for Frequent Flyers to use their points on domestic and Trans-Tasman flights, as more travellers look closer to home for their next holiday.
• Qantas increased the accessibility of Classic Flight Reward seat up to 50% to the most famous destinations in Australia and New Zealand for the remaining 2020.
• It made improvements in its other programs which include:
• Better value on accommodation
• Greater Flexibility
• More Points Planes
• Improved digital experience

DO READ: Qantas Frequent Flyer Teams up with Afterpay to earn Qantas Points with BNPL Platform

Stock Information:

QAN shares have delivered a negative YTD return of 48.60%. However, in the last three months, QAN shares have shown improvement and have provided a return of 8.88%. By the end of the trading session on 19 August 2020, QAN’s share price moved up 2.174% and settled at A$3.760. QAN has a market cap of A$6.94 billion and ~1.89 billion outstanding shares.

Bottomline:

When situations are not favourable, it is imperative to have a future plan ready beforehand, and this is evident in the case of Qantas Airways, which belongs to the aviation industry that is struggling due to COVID-19. Qantas has served Aussies for around 100 years, and its strategy to recover in the post-COVID-19 era would help it remain a market darling.