Qantas FY22 earnings: why is Qantas struggling post-pandemic?

[MongiIG]

Qantas’ EPS is expected to stay in the red as the carrier struggles to bring its profitability back on track due to capacity constraints and soaring fuel prices.

Source: Bloomberg

Hebe Chen | Market Analyst, Melbourne | Publication date: Wednesday 24 August 2022 

Qantas earnings date

Qantas Airways Limited (ASX: QAN) will announce its annual report on Thursday, 25 August 2022.

Qantas earnings expectation

Qantas’ EPS for FY22 is expected to stay in the red zone and slide even then in 2021 (-0.69 vs. -0.45). As the carrier struggles to bring its profitability back on track due to capacity constraints and mile-high fuel prices, the NPAT is anticipated to be approximately AUD -$855.8 million.

Qantas earnings key watch

• Capacity levels

The process of returning to a pre-pandemic normal has not been easy nor smooth for Qantas. The airline is experiencing pre-COVID levels of demand while underlying productivity issues such as labour shortages and operational challenges persist at record highs.

Recent guidance from Qantas suggests these issues will likely persist and until a sound solution is found and in turn may need to limit its capacity levels after recent reductions, and thus slow its timeline to profitability.

• Demand and cost

While travel demand may provide a strong tailwind for the airline industry, flight and passenger capacity remains below the pandemic level.

International flights, an area which often brought high profitability margins, have fallen behind the trend and can not be found at only 50%. Moreover, for the foreseeable future, travel demand may cool as ongoing surging fares and airport chaos works as a deterrent and impact traveller's experience.

• Management and brand

Qantas CEO Alan Joyce has recently found himself in trouble again after the union called for his resignation following his apology to Qantas customers. While it’s unlikely that Mr Joyce will leave over this, the dispute shows that the business does need to repair its reputation and trust with customers after a two-year gap, something that stockholders are keen to see.

Qantas technical analysis

Despite the recovery in risk sentiments over the past month, the Qantas share price remains ten percent lower year-to-date with little change from the last year.

Near term, the previous ascending pattern will be the critical challenge with resistance set around $4.7 to -$4.82.

Longer-term, the big gap between $4.9 and 5.2 is a massive hurdle if the price attempts to return to the level from earlier this year. On the flip side, the share price is currently retesting the 100-day moving average, which is in line with the key 50% Fibonacci retracement level near $4.51. Breaching it could draw further downside to navigate below $4.5.

Qantas daily chart

Source: IG