Qantas' capex conundrum
Investors are suddenly nervous about the speed of the airline's fleet renewal.
Last Tuesday, nearly seven weeks into the third Gulf war, Qantas belatedly addressed reality and issued a trading downgrade. Its fuel bill will be roughly $700 million higher than expected in the current financial year and only partially offset by around $200 million of additional revenue from higher airfares.
Qantas' post-Covid normal – an annual pre-tax profit with a 2-handle – has been rendered precarious. The investment banks' equities desks scrambled to update their models. As Chanticleer rightly noted, everyone's been caught on their heels here.
Qantas has suspended (read: cancelled) its $150 million share buy-back, tightened its capital expenditure in FY26 to $4.1 billion and declined to provide an updated outlook for the financial year commencing July 1. Given its enslavement to geopolitics via the international jet fuel price, the company's immediate future economics are unknowable. Will Donald Trump wake up tomorrow as US President, Jesus or even Batman?
Almost in unison, the sell-side is predicting Qantas will exceed that magical $2 billion+ profit benchmark in FY27. According to JPMorgan, it'll be $2.7 billion, Morgan Stanley and UBS say $2.4 billion, Macquarie reckons $2.3 billion and Jarden says $2.1 billion.
These are heroic assumptions, relying not only upon a resolution in the Gulf but a reversion to reasonably customary jet fuel prices – because Qantas will not get within cooee of its 2026 profit in 2027 should it continue to pay US$217 ($303) per barrel for jet fuel even until Christmas.[[US$217 per barrel was the Asia/Oceania price last week according to the International Air Transport Association. Qantas (and Virgin) profits are heavily weighted to the December half.]]
