QANTAS (QAN) – Fuel costs start to bite

Stock

QANTAS (ASX:QAN) as at 23/08/2018

Event

A volatile day for QAN after they released full year earnings this morning – the stock trading in a ~10% range. An early sell off but some strong buying into the weakness as CEO Alan Joyce allayed concerns around higher fuel costs, saying they should be able to “more than cover” higher fuel costs in the domestic market!   He didn’t match that pledge for the more competitive international market, saying only that Qantas will “substantially recover” the higher cost of jet fuel on those routes.

ASX:QAN financial result and analysis

In terms of earnings, it was a record full year profit for QAN at $1.13b which was broadly inline with market expectations while the dividend was stronger than expected. Clearly this is a good result for QAN however the stock has run hard into it, plus they’ve now got the added headwind of higher fuel costs. To give some context here, QAN will spend around $3.92bn on fuel in FY19, which is up by about A$690 million on FY18.

QANTAS (QAN) Chart 

ASX:QAN chart and trends

Market Matters Take/Outlook

QAN was a fat operation with a lot of low hanging fruit in terms of costs, which have now largely been trimmed. This coincided with a low fuel price affording QAN a strong tailwind over the past 12 months. While the stock remains cheap, its gets harder from here for the flying kangaroo.