Qantas: Customer Costs Are Rising

We maintain our AUD 6.10 fair value estimate for shares in Qantas. Profitability is normalizing after an exceptional fiscal 2023. Pent-up demand has largely exhausted, and previously constrained capacity is beginning to ease. Pricing competition is intensifying as capacity bottlenecks ease for the airline industry. Burdened by high fixed costs, low barriers to entry, and low switching costs, airlines globally lack economic moats and Qantas is no exception. We think these conditions, which plagued the airline industry before the pandemic, are set to return. We lower our fiscal 2024 EBITDA forecast by 7% to AUD 4.2 billion as a higher focus on customer service weighs on near-term profitability more than previously anticipated. But the impact on our valuation is immaterial, as our longer-term forecasts stand.