For those who are still following Qantas, you might have seen in your emails recently that Qantas are starting to ramp up promotion on sale fares, both domestic and overseas.

Admittedly, its all for low season, and having done recent searches for overseas flights at peak times, they are still pricing peak fares at well above their competitors (50% higher to Europe in the Southern Autumn/Spring).

Profitability (or rather inverse losses), is likely to return to normal over the next two years, so if you are still on board, I think it's time to sell.

I'm still bullish on Qantas medium term.

Reasoning:

1) Domestic travel is now largely unhindered, with WA rejoining the federation in the next few days, and domestic was where the profits were earned.

2) Qantas have no real competition for the profitable business dollar. Virgin are a shadow of their former selves, Rex and Bonza are not preferred where time is money (believe me, I have been burned too many times by a stingy employer), and whilst remote working has taken off, remote working cannot replace everything.

3) International will take a while to come back online, but when it does, knowing that you'll be able to rely on an airline to get home will carry a nice hefty premium that many will be happy to pay. I know I would.

4) Project Sunrise (direct long haul from east coast to UK/Europe and east Coast of USA) is going ahead, which minimises transit stops, which are likely to be highly desirable in COVID era travel, which will also come with a nice premium.

5) Qantas know that they need to keep those with golden and platinum handcuuffs tied to the airline (I'm one who is trapped). As of today, Qantas had announced yet another status extension, but have started to wean us off the idea of status extensions by structuring requalification to reward those who are actually flying. Smart move on their part - status extensions are low cost and keep your highest value customers from deciding to try a competitor.

Ultimately, I think Qantas are in the box seat with pricing power, and the low margin leisure traveller dollar won't be where their profits in the next few years lie. Investing in an airline being profitable? Strange times indeed.

Following up on my previous straws, the time to exit this trade will be when optimism about international travel from Australia in the near term is high.

Mr Strawman is fond of the saying that the market is a voting machine, and in this instance, the Qantas share price will definitely go the way of expectations.

I'll look to exit the position on SM at around $6-$6.50. My guess will be around November when there is plenty of noise from AJ about flying internationally again, even though domestic is where the money is made.

Shame I didn't trade it with real shares due to opportunity cost, but the thesis remains.

Further to my previous straw, it's becoming apparent that the market sentiment on Qantas is clearly overshooting the mark. The pre-COVID price was all about anticipated growth in Qantas International, not the boring backwater engine room of domestic. 

For FY19, EBIT for International was 25% of EBIT, with domestic + Jetstar + loyalty making up the rest. FY19 was lower margin due to high fuel costs. The latter three divisions were going gangbusters before the most recent lock downs, and will no doubt pick up once demand starts again for domestic with vaccine passports (government supported or at the insistence of Qantas).

When borders open up again, with the requirement to quarantine either at home or in special accomodation will temper demand, low cost leisure (i.e. Jetstar International) and low margin budget economy fares will be non-existent. So the money will be spent by higher margin business travellers who will no doubt be lured into spending with Qantas by double and likely triple status credit offers for fully flex business fares, rather than going with the competition.

Would any serious business traveller trust Emirates, Qatar, Etihad, Singapore, United or American, to get you home in the current environment? I wouldn't.

I think it's worth somewhere between $5.50-$6.50 on current metrics. Definitely not high reward, but it's still an easy trade with little downside risk.

Qantas International was never hugely profitable, and relied upon rusted on frequent flyers held by platinum handcuffs (of which I am one) to keep it afloat.

Qantas domestic, however was hugely profitable pre-COVID, and at least before the Sydney lockdown, with domestic flying capacity at 90% for Qantas and 110% for Jetstar, the result was always going to be better than the market was pricing in. 

With a pre-COVID valuation of approx 10x EPS for FY19, all the bad financial news out, Government now talking about financial assistance, a decent financial buffer, and the domestic competition on the floor, the market is currently pricing Qantas down on sentiment.

It's definitely not long term, but it's an easy trade with little downside, and plenty of upside once domestic borders open up without much restriction, and international demand stays low for some time to come.