Qantas soars on profit view hike, likely shareholder returns next year

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(Reuters) -Australia's Qantas Airways Ltd raised its first-half pre-tax profit outlook on Wednesday on strong travel demand, with limits on international capacity helping boost domestic tourism, sending its shares to more than a two-year high.

In its second profit upgrade in six weeks, the carrier expects first-half underlying profit before tax between A$1.35 billion and A$1.45 billion ($898.02 million and $964.54 million), above prior expectation of between A$1.2 billion and A$1.3 billion.

That is above UBS forecast of A$1.2 billion, and is a turnaround from last year's underlying loss before tax of A$1.28 billion.

Shares of the airline jumped as much as 6.1% to A$6.23, their highest level since Feb. 24, 2020, and were the second biggest gainer in the ASX 200 benchmark index.

"Consumers continue to put a high priority on travel ahead of other spending categories and there are signs that limits on international capacity are driving more domestic leisure demand, benefiting Australian tourism," Qantas said.

Analysts at UBS in a note said "strong demand plus Qantas' strategy to focus on profitability rather than growth will support earnings momentum into FY24".

"Domestically, the market structure means rational capacity and high cost pass-through; internationally, we expect international airlines to reinstate more capacity, however global constraints on growth, especially fleet and labour, will likely persist for years."

Qantas now also expects its net debt to be between A$2.3 billion and A$2.5 billion by 2022 end, A$900 million lower than its previous estimate.

"Low levels of net debt put the board in a position to consider future shareholder returns in February 2023," the airline said, adding 76% of the A$400 million share buyback program announced in August has been completed.

UBS expects Qantas to announce additional share buy-backs of A$300 million in second-half of fiscal 2023 and A$500 million in fiscal 2024.

($1 = 1.5033 Australian dollars)