That's a really good question, @Shapeshifter.

There is a real risk that airlines will continue to remain a cyclical industry with Government intervention possible.

From an aging fleet perspective, the renewal of the fleet will help drive fleet efficiencies, albeit with higher levels of CAPEX spend.

Given the pending IPO of Virgin, in my view, it is likely that the two major domestic carriers (oligopoly) will not engage in a pricing war anytime soon, as Virgin also wishes to show higher margins to the market prior to its listing on the ASX.

QANTAS is certainly on the nose, and customers have had a horrible experience of late, but they are set for a record FY23e profit and the thesis assumes they can sustain profits following cost optimisations which occured during COVID. Prior to COVID, QANTAS was trading at a 11x PE.

I am personally treating this as a something of a 6 month to 2 year trade, as opposed to a long term hold.

My take is that there is further to run in the share price, but there are plenty of risks to be concious of.

Interested in your thoughts.

Agree about ticket prices. Don't see them coming down anytime soon given the factors you mention. However, if they do come down the fleet efficiencies don't kick in until FY26 realistically. Between now and let's say FY27/28 the EPS will be lowered by transition costs of the fleet change. There are the additional costs such as equipment, training of staff and the inevitable teething problems of introducing a new type of aircraft. Given those factors wouldn't you need a longer-term horizon?

Something to remember is Virgin got a free ticket to remove all unnecessary costs through the administration process. While Qantas was able to cut costs dramatically, as an example Qantas didn't get to hand the keys back like Virgin did on leases they didn't want any more (at least not without significant penalty).

Side note: Interested to know how they get such large improvements in utilisation between the types listed. All these aircraft fly at basically the same speed and the new aircraft are larger so would require longer time on the ground to unload/load. Unless this is to do with the longer range allowing new routes on the new type compared to the old but the B737 can already fly cross-continent now (might weight limited)... Maybe they plan to send the A321XLR to Bali overnight from more ports increasing utilisation.

Also, it is worth noting that the QANTAS fleet renewal is of course a CAPEX investment and thus will not impact EBITDA earnings (income statement), only cashflows. It will be treated as an asset on the balance sheet, that is deducted over the course of several years as a depreciation expense, beginning the year following the date on which the item is purchased.