If you currently hold Qantas (ASX QAN) stock or are looking to purchase some stock, you’re probably wondering will the recent 737-MAX incidents affect the Qantas share price?
After liaising with Qantas, they have confirmed that they hold none of these planes and don’t have any ordered. While Virgin has ordered 30 of these planes, this presents an opportunity for Qantas to take advantage of how Virgin will be affected by this if there is a critical problem with the 737-MAX in the long-term.
Qantas (ASX QAN) Updating Fleet with A320Neo
Qantas will continue to update their pre-existing fleet with the A320neo’s and after this event will most-likely harden their stance of not having any 737-MAX’s in their fleet or order any till the issues resolve. If there is a critical problem with the 737-MAX’s will likely mean delayed orders for this plane, presenting an opportunity for Qantas to take advantage and take up market share.
Currently, Qantas Group holds around 58.9% of market share & Virgin Australia holds 30.1%, the majority of Virgin flights in Australia are operated by their older 737 models that were meant to be supported by their new 737-MAX’s to capture the growing demand of domestic flights.
With Qantas Group being able to fill the gap that Virgin isn’t able to fill, it is expected that a delay in delivery for Virgin will further increase market share for Qantas as they can capture the customers with their A320neo’s.
The A320neo is a way Airbus has been able to continue its product line as the plane is one of the world’s most advanced and fuel-efficient single-aisle aircraft, with upgraded Pratt and Whitney engines, and fuel-saving wingtip devices known as ‘sharklets’.
Qantas (ASX QAN) Continues To Outperform
The future of Qantas doesn’t pose any turbulence, with three main factors driving their performance. The revenue strength is substantially offsetting fuel cost increase and they are investing in customers and upgrading their fleet and routes (e.g. safety record, A320neo instead of the 737-MAX, and long-distance 787-9 flights).
The group believes it’s well positioned for a strong half and to recover the increased fuel cost completely by the end of this financial year. With its forward bookings up 6.8%, Qantas sees a strong fourth quarter due to the school holidays. Qantas also believes it will see Unit Revenue growth for both domestic and International in 1H19; this is expected to generate significant net free cash flow.
Overall, Qantas is a steady stock with a strong financial base and large overseas earnings supported by a low Australian dollar. The company is a good buy but will be slightly held back as the oil prices’ are set to increase over the next year. The group now has an opportunity to steal some of Virgin’s market share; this could lead to a higher upside in the Qantas share price.
For more information, check out our stock profile on Qantas here.
Henry Fung is a Partner Managing Director and co-founder of MF & Co. Asset Management. He is a highly experienced equities, derivatives and financial markets professional with over 12 years of experience. Henry specialises in building trading algorithms & systems, quantitative & qualitative analytics across macroeconomic, fundamental and technical disciplines and currently runs the MFAM VPAC AU/US models portfolios. The management Partners and Adviser team have decades of experience between them, with experience from major Investment Banks and Brokers. Their Advisers are highly experienced, having dealt with some of the wealthiest clients in Australia.