Qantas' International Traffic Grinds to a Halt, but Shares Attractive

We reduce our fair value estimate for Qantas by 6% to AUD 4.70 following significant capacity restrictions across the firm's network as COVID-19 continues to wreak havoc on the global airline industry. This comes on the back of more stringent Australian entry requirements of mandatory 14-day self-isolation for international arrivals; a ban of noncitizen, nonpermanent resident arrivals; and federal government advice to avoid all overseas travel. We also raise our fair value uncertainty to very high, as financial leverage across the business is having a significant impact on underlying earnings. Nevertheless, we don't expect the impact of the virus to be protracted and forecast demand to recover from fiscal 2021. Despite our lower fair value estimate and increased uncertainty rating, shares in Qantas continue to screen as attractive, trading at a significant discount to our fair value estimate.