Qantas rides out turbulence better than airport

QANTAS and Sydney Airport have been named JP Morgan’s best and worst mid-year prospects in the transport sector, as the Covid pandemic drags on.

The report by analyst Richard Jones said the airline industry was in the midst of its greatest challenge but Qantas was “well positioned” given the domestic recovery and the airline’s extensive cost-cutting.

In contrast, Sydney Airport’s reliance on international travel meant the company was unlikely to see a meaningful earnings rebound until borders fully reopened.

Despite the hiccup of the Victorian lockdown, Mr Jones said Qantas had a 70 per cent share of the domestic market, which was recovering strongly.

“Australia is only behind China and South Korea in terms of the domestic recovery globally,” Mr Jones said.

“(Qantas) Loyalty continues to perform well with the company expecting second-half earnings to be higher than the first half of the 2021 financial year.”

He highlighted recent data showing Qantas’s net debt peaked at $6.4bn in February and was expected to be back within the range of $4.5bn to $5.6bn by mid-2022.

“Qantas is again free cashflow positive and revenue in advance is rebuilding. Qantas has $4bn of liquidity with no financial covenants,” Mr Jones said.

He said the airline’s financial position had put it in better shape than its international rivals.

Sydney Airport on the other hand, faced severe short-term challenges, with its aeronautical, retail and carparking businesses severely impacted by a 75 per cent decline in passenger numbers.

Over the next six months, Qantas shares were tipped to climb from $4.81 to $5.70, while Sydney Airport shares were expected to contract from $6.12 to $5.70.