The Qantas Airways Limited (ASX: QAN) share price jumped around 40% in FY23, significantly outperforming the S&P/ASX 200 Index (ASX: XJO).
As we can see on the chart below, the ASX airline share kept rising for the first nine months of the financial year and then was essentially flat, though there was some volatility.
Most of the year was defined by strong travel demand and an improving financial position for the company. Let’s remind ourselves of how much strength the business saw.
Demand and profit recap
In October 2022, the company said domestic travel remained “strong” across all categories. The revenue from domestic leisure was more than 130% of pre-COVID times. The business was initially expecting to generate underlying net profit before tax (NPBT) of between $1.2 billion to $1.3 billion for the first half of FY23.
In November 2022, the ASX travel share increased its underlying profit before tax range by $150 million to guidance of between $1.35 billion to $1.45 billion. The airline said consumers were continuing to put a high priority on travel ahead of other spending categories and there were signs that limits on international capacity are driving more domestic leisure demand.
The FY23 first-half result revealed underlying profit before tax of $1.43 billion. This was at the top end of its upgraded guidance, thanks to “consistently strong travel demand, higher yields and cost improvements”. It said that leisure demand continued to lead the recovery, which has seemingly been a major support for the Qantas share price.
For the second half of FY23, the airline said group domestic capacity was expected to increase from 94% to 103% and international capacity was expected to increase from 60% to 81%. Fares were expected to moderate as capacity increased but would remain “significantly above FY19 levels”.
In May, the company noted it was expecting underlying profit before tax to be $2.425 billion to $2.475 billion, thanks to “continued strong travel demand”. It slightly increased its expectations of group domestic capacity to above pre-COVID levels at 104% (up from 103%) by the end of the second half.
At the end of June, Qantas gave an ‘industry update’ and said that “travel demand remains strong and data shows that consumers continue to prioritise travel over other spending categories”. The airline said it remained on track to deliver the financial performance for FY23 outlined in the May update.
Share buyback
Another factor that may have helped the Qantas share price was the company investing hundreds of millions of dollars in a share buyback.
In early FY23, it announced a share buyback of up to $400 million. Low levels of net debt “put the board in a position” to consider more capital allocation for share buybacks later in the year.
In the HY23 result, it announced an additional $500 million share buyback.
Then, in May, it increased the $500 million share buyback by another $100 million.
The huge share buybacks in FY23 are supportive of the Qantas share price because the company is increasing on-market demand for Qantas shares. It is also boosting metrics such as earnings per share (EPS) and return on equity (ROE).
Qantas share price valuation
The profit that investors are expecting can have a significant impact on what the market thinks a share price is worth.
Based on the Commsec estimate, the FY23-ending valuation meant the Qantas share price was priced at under 10x FY23’s estimated earnings.
