Pros and cons of buying Qantas shares before the end of 2024

A man sits on a plane, looking out the window and working on a laptop.

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This Qantas Airlines The company’s (ASX:QAN) share price has performed well recently, rising 14% in the last month and around 30% over the last year, as shown in the chart below.

Much of the growth came after the company released its fiscal year 2024 results, which were quite positive given our economic situation.

In its FY2024 report, Qantas revealed it had achieved $2.08 billion in underlying profit before tax (down 16%) and $1.25 billion in net profit after tax (down 28%).

While this represented a decline, I considered the result to be strong given that airfares had fallen from their peak. With a portion of the profit, Qantas will distribute up to $400 million to shareholders in the first half of its 2025 financial year by buying back shares on the market.

With the results now in, we need to consider whether it is worth buying Qantas shares at this higher price.

Negatives

The airline is currently undergoing the largest fleet renewal programme in its history, with 20 aircraft due to arrive in FY25. The company needs to do this to ensure it has the aircraft it needs, but it comes at a higher cost, which is the opposite of profitability.

One expense that is rising is net finance costs, which are expected to increase from $201 million in fiscal 2024 to $270 million in fiscal 2025 due to higher net debt, which was $4.1 billion as of June 30, 2024, and high interest rates.

Qantas noted in its outlook commentary that group international revenue is likely to decline by 7-10 per cent in the first half of FY2025 (compared to the previous period) as market potential continues to recover.

There is also the fact that the Qantas share price has risen. The higher the valuation, the lower the growth potential.

Positive aspects of Qantas share price

The airline said in its FY24 results that looking ahead, bookings and travel demand remain stable. It noted that travel intention and revenue trends remain “positive across all airline brands.”

In fiscal year 2024, Qantas saw improvements in both its flight punctuality and customer satisfaction, which I believe bodes well for continued passenger growth.

Although the planes are expensive, their replacement was inevitable. The new planes, the airline says, will provide Qantas with improvements in operating costs, network flexibility, passenger comfort and emissions.

To Qantas’ delight, the group’s domestic revenue is expected to grow by 2% to 4% in the first half of FY2025. Overall, Qantas said it sees “positive revenue momentum” heading into the first half of FY2025.

Qantas’ loyalty business also continues to perform well, with the segment growing underlying earnings before interest and tax (EBIT) by 13% to $511 million in FY2024. Qantas Loyalty is expected to grow underlying EBIT by at least another 10% in FY2025.

Are Qantas shares attractive?

For FY2024, the company reported underlying earnings per share (EPS) of 88 cents and statutory EPS of 75.9 cents. Broker UBS suggests Qantas’ EPS could rise to 94 cents in FY2025, implying a Qantas share price of 7x FY2025 estimated earnings.

EPS could grow over the next few years and reach $1.16 in fiscal 2029. A 23% increase between fiscal 2025 and fiscal 2029 is not unbelievable, but for a company with a P/E ratio of 7, I think it is still attractive and could beat the market over the next few years.