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Thursday 09 May 2013 by FIIG Research Legacy

Qantas full research report available

Executive Summary

Qantas was founded in 1920 and has grown to be Australia’s largest domestic and international airline
Whilst the key business remains the transport of airline passengers, the group has grown to include a number of complimentary segments: Qantas domestic, Qantas international,Qantas freight, Jetstar and Qantas frequent flyer
Qantas retains a dominant position in the Australian domestic airline sector with a market share of circa 65% through its Qantas and Jetstar brands
The company has employed a successful duel branding strategy between Qantas, which offers a full cost service and Jetstar, its highly successful low cost carrier airline which has driven significant growth over recent years including its international expansion
The successful differentiation allows the Group to hold the largest market share in both the business and low cost ends of the Australian market simultaneously
The company has undertaken a significant transformation of its international business which has resulted in a $171m improvement to the underlying performance of the segment. Further improvements as part of this process will see the segment return to profitability
With over $3bn in cash and a further $400m in available facilities Qantas maintains a very strong liquidity position. Its ability to defer significant capital expenditure can also provide further capacity over the short term
The company has pursued a significant expansion program in Asia through its Jetstar brand and is now the largest low cost carrier in the Asia-Pacific region
The Jetstar Group remains well placed to continue to take advantage of this high growth area with its corporate structure and alliance through local shareholder partners providing a lower cost platform than is able to be achieved through the premium Qantas brand
The nature of the airline industry presents a risk for bond holders due to it being cyclical, competitive, capital intensive and exposed to the cost of jet fuel
Investors in Qantas bonds enjoy stronger returns than bonds from similarly rated corporates in the Australian market, whilst maintaining an investment grade exposure

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