Australia Markets closed

Qantas share price higher on strong third quarter update

James Mickleboro

In morning trade the Qantas Airways Limited (ASX: QAN) share price has pushed higher following the release of its third quarter update.

At the time of writing the airline operator’s shares are up 1% to $5.49.

What happened in the third quarter?

In the third quarter of FY 2019 Qantas posted revenue of $4.4 billion, up 2.3% on the prior corresponding period.

Qantas achieved this despite a shift in the timing of Easter, which commenced in the third quarter of FY 2018 but moved completely into the fourth quarter of FY 2019. Easter typically sees strong demand for leisure travel due to school and public holidays.

When factoring in Easter, Qantas’ result looks even stronger. According to the release, group revenue per available seat kilometre grew 5.5% for the four months from January 1.

Pleasingly, the company’s continued capacity discipline assisted with yield management and the recovery of fuel costs, meaning that Qantas remains on track to fully offset the impact of significantly higher fuel costs compared with last year.

How did its segments perform?

Group Domestic unit revenue increased by 1.1% during the quarter. Ongoing strengthening in the resources market more than offset weakening demand in other parts of the corporate market.

Group International unit revenue increased by 6.2%, with a particularly robust performance by Qantas International. Management advised that network changes drove the strong revenue performance, as did competitor capacity reductions on long haul routes in response to higher fuel costs. The latter led to increased market share for Qantas International. Jetstar international was heavily impacted by the timing of Easter and school holidays, but still reported growth in unit revenue.

Qantas Loyalty continued to see strong revenue growth from the Frequent Flyer program as well as its other businesses, including Qantas Money and Qantas Insurance. The good news is that several initiatives will be announced in the fourth quarter which are expected to continue to support its performance. Management expects second half segment earnings growth of 7% to 10%.

What else was announced?

Qantas revealed that it has reached an agreement with Melbourne Airport for the sale of the airline’s domestic terminal. Melbourne Airport will pay Qantas $355 million for the terminal, with $276 million to be received in cash in this financial year and the remaining value to be accrued in future periods.

The transaction includes a 10-year access agreement for Terminal 1 with all aeronautical and retail assets transferring to Melbourne Airport. Qantas retains exclusive access to Terminal 1, including lounges, for domestic services.

Should you invest?

I’m a big fan of Qantas and believe this quarterly result demonstrates why it could be the standout pick in the airline industry.

I continue to class its shares as a buy and would suggest investors choose them ahead of rivals Air New Zealand Limited (ASX: AIZ) and Virgin Australia Holdings Ltd (ASX: VAH).

But if you're not keen on airlines then here is a small cap share that is well worth taking a look at. It has been rated as a buy and tipped for very big things.

One ASX Stock For An Estimated $US22 Billion Marijuana Market

A little-known ASX company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

And make no mistake – it is coming. To the tune of an estimated $US22 billion.

Cannabis legalisation is sweeping over North America, and full legalisation arrived in Canada in October 2018.

Here's the best part: we think there's one ASX stock that's uniquely positioned to profit immensely from this explosive new industry... taking savvy investors along for what could be one heck of a ride.

AND, this is the first time The Motley Fool Australia has EVER put a BUY recommendation on a marijuana stock.

Simply click here to learn more on how you can profit from the coming cannabis boom.

More reading

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019