QAN.AX — Equity Research Report

Qantas Airways Limited

QAN.AX · Airlines · ASX

A$9.09

−0.20 (−2.15%) 9 Apr 2026

52W: A$7.87 – A$12.51

Market Cap

A$13.6B

A$19.2B

P/E (TTM)

8.5×

EV/EBITDA

4.3×

FCF Yield

3.3%

ROIC

20.7%

Div Yield

5.7%

Analyst Target

A$12.06

Section 1 — Business Overview

Qantas is Australia's flag carrier and dominant domestic airline, operating through four segments: Qantas Domestic (full-service domestic and regional); Qantas International (long-haul routes across Asia, Europe, North America, and New Zealand plus freight); Jetstar Group (low-cost carrier operating across Australia, New Zealand, Japan, and South-East Asia); and Qantas Loyalty (the Frequent Flyer program, now a structurally profitable standalone business). The group employs approximately 27,000 people and operates a fleet of 365 aircraft.

The structural story here is genuinely compelling. Qantas commands a near-duopoly in domestic Australian aviation — Virgin Australia being the only meaningful full-service competitor — with pricing power that most international peers can only envy. The Loyalty segment is the crown jewel in disguise: it generates high-margin recurring income from points sales to banks and retailers, largely insulated from airline cycle volatility. I'd argue the market chronically undervalues this segment.

The international operation continues its post-COVID recovery. Long-haul capacity has been rebuilding, load factors have recovered to ~84–85%, and yields remain elevated versus pre-pandemic levels — passengers are paying meaningfully more per kilometre than they did in 2019. Jetstar adds useful low-cost exposure in a market where budget carriers have taken significant share, particularly on trans-Tasman and South-East Asian routes.

Segment Revenue Breakdown (FY2025, AUD M)

Segment	H2 2025 (Dec-24)	H1 2025 (Jun-25)	FY2025 Est.	% Mix
Qantas Domestic	3,926	3,382	7,308	30.7%
Qantas International	4,529	4,255	8,784	36.9%
Jetstar Group	3,026	2,726	5,752	24.2%
Qantas Loyalty	1,391	1,520	2,911	12.2%
Total (external)	12,896	11,694	23,823	100%

Key Operating Metrics

Metric	FY2025	FY2024	FY2023
Revenue Passengers (M)	55.3	54.1	49.1
Available Seat Kms (ASK, B)	152.8	148.5	131.1
Revenue Passenger Kms (RPK, B)	130.1	124.2	108.4
Load Factor (%)	84.3%	83.7%	82.7%
Fleet Size	728	704	677
Fuel Expense (A$M)	5,076	5,214	4,893

Semiannual operating metrics summed across both halves of each financial year.

Section 2 — Financial Performance

Qantas has delivered a remarkable earnings recovery from the COVID trough. Revenue has more than doubled from A$5.9B in FY2021 to A$23.8B in FY2025. More importantly, margins have recovered toward and in some cases through pre-pandemic levels, reflecting both the pent-up demand tailwind and deliberate capacity discipline. The FY2023 performance — EBITDA of A$4.5B and EBIT of A$2.7B — was arguably the peak of the recovery cycle; FY2025 is settling into a more sustainable cruising altitude.

The headline concern is free cash flow. Despite strong operating cash generation of A$4.1B in FY2025, net capex reached A$3.7B as Qantas executes one of the largest fleet renewal programs in its history (new A321XLRs, 787-9 variants, and regional aircraft). The result is FCF of just A$454M — a 1.9% FCF margin on revenue. This is a real constraint on near-term shareholder returns, though it's investment-led, not operational weakness.

Income Statement (AUD M)

Metric	FY2025	FY2024	FY2023	FY2022	FY2021
Revenue	23,823	21,939	19,815	9,108	5,934
Gross Profit	10,543	9,503	9,092	2,937	1,528
EBITDA	4,467	3,843	4,496	363	516
EBIT	2,455	2,070	2,734	−1,438	−1,361
NPAT	1,605	1,251	1,744	−860	−1,692
EPS (diluted, A$)	1.05	0.74	0.96	−0.45	−0.87

Margin Analysis (%)

Margin	FY2025	FY2024	FY2023	FY2022	FY2021
Gross Margin	44.3%	43.3%	45.9%	32.2%	25.8%
EBITDA Margin	18.7%	17.5%	22.7%	4.0%	8.7%
EBIT Margin	10.3%	9.4%	13.8%	−15.8%	−22.9%
Net Margin	6.7%	5.7%	8.8%	−9.4%	−28.5%
FCF Margin	1.9%	3.5%	12.6%	n/m	n/m

Balance Sheet Snapshot (FY2025, AUD M)

Cash & Short-Term Investments

A$2,363M

Solid liquidity buffer

Total Debt

A$7,956M

Bonds + operating leases + term loans

Net Debt

A$5,593M

Net Debt/EBITDA = 1.25×

Common Equity

A$783M

Heavily eroded by buybacks & COVID losses

Cash Flow Summary (AUD M)

Item	FY2025	FY2024	FY2023	FY2022
Operating Cash Flow	4,140	3,353	5,054	2,655
Capex (net)	3,686	2,583	2,552	105
FCF	454	770	2,502	2,550
Dividends Paid	800	–	–	–
Buybacks	472	909	1,444	405

Commentary: The FY2025 capex of A$3.7B is the highest in Qantas history, driven by aircraft deliveries and terminal investment. This is structurally positive — the fleet renewal lowers unit costs and fuel consumption — but it has compressed near-term FCF dramatically. FY2023's A$2.5B FCF, achieved during a period of elevated yields and modest capex, better represents what normalised FCF looks like. I expect FCF to recover toward A$1.5–2.5B once the heaviest capex years (FY2025–FY2027) pass.

Section 3 — Valuation: Enterprise DCF

WACC Build-Up

Component	Input	Notes
Risk-free rate (Rf)	4.35%	10-year Australian Government Bond yield
Beta (β)	1.20	Airlines: cyclical, operationally leveraged
Market Risk Premium (MRP)	6.00%	Standard Australian long-run equity premium
Cost of Equity (ke)	11.55%	ke = 4.35% + 1.2 × 6.0%
Cost of Debt (kd, gross)	4.90%	Interest expense / Average debt
After-tax kd	3.43%	kd × (1 − 30% tax)
Debt weight (D/V)	37%	Market-value weights
Equity weight (E/V)	63%
WACC	8.54%	0.37 × 3.43% + 0.63 × 11.55%

DCF Scenarios

Assumption	Bear	Base	Bull
Revenue CAGR (5yr)	2%	5%	7%
Normalised FCF margin (yr 5)	4%	8%	11%
Exit EV/EBITDA (year 5)	4.0×	5.0×	6.0×
Terminal growth (g)	2.0%	2.5%	3.0%
WACC	9.5%	8.5%	8.0%
Implied Price (A$/share)	A$7.37	A$13.30	A$20.52

Bear

A$7.37

−19% vs current

Base

A$13.30

+46% vs current

Bull

A$20.52

+126% vs current

Current

A$9.09

Market price

Commentary: At A$9.09, the market is pricing QAN closer to the bear than base case, which I think is too pessimistic. The implied exit multiple in the market's current pricing is roughly 4.0× EV/EBITDA — consistent with terminal-value pessimism about the airline industry's durability. My base case assumes nothing heroic: 5% revenue growth (below the post-COVID CAGR of ~20%), normalised FCF margins of 8% (below the FY2023 realisation of 12.6%), and a 5× exit multiple. On those assumptions, A$13.30 looks achievable once the capex cycle peaks.

The terminal value represents approximately 80% of total enterprise value in the base case — high, but not unusual for an operationally intensive business where near-term FCF is compressed by investment. The key risk is that the airline cycle turns before capex normalises.

Sensitivity Table (Base Case Equity Value per Share, A$)

Rows = terminal growth rate; Columns = WACC. Blue cell = base case.

g \ WACC	6.5%	7.5%	8.5%	9.5%	10.5%
1.0%	18.12	14.89	12.37	10.38	8.79
1.5%	19.24	15.68	12.94	10.81	9.12
2.0%	20.52	16.58	13.57	11.28	9.47
2.5%	22.04	17.61	13.30	11.80	9.85
3.0%	23.86	18.79	14.95	12.38	10.26
3.5%	26.08	20.16	15.77	13.02	10.71
4.0%	28.83	21.76	16.69	13.73	11.19

Section 4 — Valuation: Economic Profit

The economic profit framework cuts through accounting noise and asks a simple question: is Qantas earning more than the cost of the capital it deploys? The answer is firmly yes — and by a wide margin.

Metric	FY2025	FY2024	FY2023
NOPAT (A$M)	1,719	1,449	1,914
Average Invested Capital (A$M)	8,307	7,250	7,615
ROIC	20.7%	20.0%	25.1%
WACC	8.5%	8.5%	8.5%
ROIC − WACC Spread	+12.2pp	+11.5pp	+16.6pp
Economic Profit (A$M)	+A$1,013M	+A$834M	+A$1,264M

Commentary: A ROIC of ~21% against a WACC of ~8.5% is exceptional for an airline. Most global carriers earn at or below their cost of capital through the cycle; Qantas is generating economic profit of over A$1B per year. This reflects the structural advantages of a near-duopoly domestic market, the Loyalty segment's capital-light earnings, and the cost discipline instilled since the 2014 restructuring. The spread has widened again post-COVID recovery and I expect it to stay elevated as long as domestic capacity remains disciplined. The FY2023 peak spread of 16.6pp is unlikely to repeat, but sustaining 10–12pp is a realistic base case assumption.

The market's current EV/EBITDA of 4.3× implies significant ROIC deterioration ahead. Either the market expects the competitive environment to intensify materially, or the capex cycle is spooking investors about near-term returns. I think both fears are overdone.

Section 5 — Valuation Summary: Football Field

Commentary: The current price sits below every valuation methodology except the bottom of the peer comps range, which itself uses depressed trailing multiples. The gap between the current price and the A$12.06 analyst consensus target is 33%. Even the bottom of the DCF bear case (A$7.37) only implies ~19% downside. The risk/reward skews attractively in favour of a long position, provided the capex-heavy investment cycle doesn't produce a balance sheet accident — which the current 1.25× Net Debt/EBITDA makes highly unlikely.

Section 6 — Savings Account Test (FCF/EV)

If you treated Qantas' EV of A$19.2B as a bank deposit, the annual "interest" you'd receive from free cash flow of A$454M would be:

2.37%

Note: Current FCF is suppressed by A$3.7B capex cycle (fleet renewal). Normalised FCF (~A$2.0B) implies an FCF/EV yield of ~10.4% — well above all benchmarks.

Benchmark	Rate	FCF/EV vs Benchmark	Verdict
RBA Cash Rate	4.10%	2.37% vs 4.10%	❌ Below
12-Month Term Deposit	~5.00%	2.37% vs 5.00%	❌ Below
ASX 200 Earnings Yield	~5.50%	2.37% vs 5.50%	❌ Below
Normalised FCF/EV	~10.4%	10.4% vs 5.50%	✅ Above

Commentary: The headline FCF/EV of 2.37% looks uninspiring. But it's analytically misleading to penalise Qantas here — the depressed FCF is a function of an extraordinary capital investment cycle, not operational weakness. OCF of A$4.1B represents a 21.4% OCF/EV yield, which comfortably beats every benchmark. Once capex normalises (expected FY2027–FY2028), normalised FCF/EV should reach ~10%, making QAN a cash machine by any reasonable standard. I'd view the current depressed FCF yield as a temporary condition, not a structural concern.

Section 7 — Earnings at Risk

Earnings at Risk (EaR) quantifies how much Qantas' earnings could fall under plausible adverse movements in key risk factors. Airlines face concentrated exposure to fuel, FX, yield softness, and interest rates — all of which can move simultaneously in a downturn.

EaR Scenario Analysis (after-tax impact on NPAT, AUD M)

Risk Factor	Exposure	Shock Scenario	NPAT Impact	% of NPAT	Severity
Fuel Price	A$5.1B annual cost	+10% jet fuel price, unhedged	−A$357M	−22.2%	HIGH
Passenger Yield	~A$11.1B pax revenue	−5% yield (load factor unchanged)	−A$389M	−24.2%	HIGH
AUD Depreciation	~40% USD-cost base	−10% AUD/USD (net of revenue offset)	−A$180M	−11.2%	MEDIUM
Interest Rate	~A$2.0B floating rate debt	+100bps on floating rate debt	−A$14M	−0.9%	LOW
Volume / Recession	Full revenue base	−10% RPK volume (capacity cut)	−A$520M est.	−32.4%	HIGH
Combined Stress (non-additive)	All factors, partial offset	Mild recession + fuel +10% + yield −5%	−A$750–A$900M	−47–56%	HIGH

Commentary: Fuel is the single biggest earnings risk — a 10% unhedged fuel price spike wipes ~22% of NPAT. In practice, Qantas hedges a significant portion of future fuel purchases (typically 50–70% of the next 12 months), which meaningfully reduces this sensitivity in the near term. The yield sensitivity is arguably more concerning because it's harder to hedge and correlates with economic cycles. A combined stress scenario — recession plus fuel spike — could cut NPAT by close to half, which is consistent with what happened during FY2022/FY2023 oil-price periods and the COVID collapse.

The good news is that Qantas has demonstrated its ability to respond: in FY2020–FY2021 it cut capacity aggressively, reduced its cost base, and raised equity capital. The current balance sheet, with Net Debt/EBITDA of 1.25×, provides a materially better buffer than it entered COVID with (~2.7× in FY2019). I'd note that airlines' cost structures are approximately 40% variable (fuel, landing fees), which helps manage downside faster than most heavy industries.

Section 8 — Economic Capital

Economic Capital represents the equity buffer required to absorb unexpected losses at a defined confidence level. For a non-bank like Qantas, I apply an adapted framework: the capital required to survive a severe stress scenario (1-in-10 year event) without breaching covenants or losing investment-grade status.

Economic Capital Framework

Capital Concept	A$M	Commentary
Book Common Equity (FY2025)	783	Severely eroded by buybacks and COVID losses
Add: Right-of-Use Asset (lease equity)	1,280	Equity-equivalent content of operating leases
Adjusted Tangible Equity	2,063	Still thin as % of assets (8.6%)
Market-Implied Equity Buffer	13,584	Market Cap — what shareholders believe the equity is worth
Minimum Required Economic Capital (est.)	2,000–3,000	2–3% of A$24B revenue; investment-grade threshold
Economic Capital Surplus / (Deficit)	(Adequate)	Market cap of A$13.6B implies substantial buffer

Stress Test: 1-in-10 Year Scenario

Item	Baseline (FY2025)	Stress Scenario	Change
Revenue (A$M)	23,823	18,000	−24%
EBITDA (A$M)	4,467	1,200	−73%
EBIT (A$M)	2,455	−800	n/m
Net Debt / EBITDA (×)	1.25×	4.7×	Elevated but manageable
Interest Coverage (×)	8.1×	~0× (breakeven)	Covenant risk zone
Liquidity (cash + committed facilities)	~A$4.5B est.	~A$2.5B post-drawdown	Sufficient for 18 months

Commentary: Under a stress scenario (revenue −24%, approximating a severe recession or pandemic-equivalent shock), Qantas would face covenant pressure on its interest coverage. However, unlike entering COVID with A$2.2B in uncommitted cash, QAN now enters any downturn with a committed liquidity position of around A$4.5B (cash plus revolving facilities), more than double its FY2020 position. The key economic capital lesson from COVID is that airlines need sufficient pre-committed liquidity to bridge a 12–18 month severe demand shock — Qantas currently meets this threshold. The thin book equity (A$783M) is the structural vulnerability, but it's a misleading number: it reflects decades of returned capital and is best viewed through market cap, not book value.

Section 9 — Red Flags Assessment (Allen/Plato Framework)

Flags (Red)

Watches (Amber)

Clear (Green)

#	Category	Status	Detail
1	Negative Operating Cash Flow	CLEAR	OCF = A$4.14B. Consistently positive and large.
2	Earnings–Cash Flow Divergence	CLEAR	OCF (A$4.1B) substantially exceeds NPAT (A$1.6B) due to D&A. No manipulation signal.
3	Excessive Debt (Net Debt/EBITDA >3×)	CLEAR	Net Debt/EBITDA = 1.25×. Conservative for an airline.
4	Insider Selling	WATCH	CEO Hudson bought 125K shares at A$7.68 (Sep-25) — positive signal. CFO Marcolina had −327K disposition (Jun-25, coded J = non-purchase). Mixed overall.
5	Executive Remuneration	WATCH	Remuneration structure improved post Alan Joyce era. New CEO Hudson has skin in game. Still monitoring relative to peers.
6	Corporate Governance	WATCH	Qantas carries legacy governance baggage — ACCC booking conduct litigation, customer service failures. Board has been substantially refreshed. Improving but elevated vigilance warranted.
7	Related Party Transactions	CLEAR	No material related party transactions identified in filed accounts.
8	Auditor Quality	CLEAR	Big 4 auditor. Standard.
9	Aggressive Growth Expectations	CLEAR	At 4.3× EV/EBITDA, market prices in almost no growth. This is the opposite of aggressive expectations.
10	High Beta (>1.5)	CLEAR	Beta ~1.2. Elevated versus market but below the 1.5× danger threshold.
11	Non-Standard Performance Metrics	WATCH	Qantas reports "Underlying EBITDA" and "Underlying PBT" which can obscure restructuring and impairment charges. Company-reported Underlying EBITDA (A$4.5B) roughly matches standardised, but warrants scrutiny each half.
12	Overstated Receivables/Inventory	CLEAR	Receivables/Revenue = 5.1% (FY2025) vs 5.3% (FY2024). Stable trend. Inventory A$405M = 1.7% of revenue. No unusual build.

⚠️ CAUTION — 4 Watches, 0 Flags. No structural red flags, but governance legacy and remuneration bear monitoring.

Section 10 — Risks & Considerations

Fuel Price Volatility. Jet fuel is Qantas' largest single cost line at A$5.1B (21% of revenue). The airline hedges a portion of forward purchases, but a sustained rise in crude oil would erode margins materially. The EaR analysis above shows a 10% fuel price increase reduces NPAT by ~22%. A severe supply disruption (Middle East escalation, sanctions) could compound this.

Capex Cycle Risk. The current fleet renewal program is the most ambitious in Qantas' history. A$3.7B of capex in FY2025 alone, with more to come in FY2026–FY2027, means the company is highly dependent on aircraft deliveries running on schedule — Airbus and Boeing have both demonstrated significant delivery delays in recent years. Any slippage extends the period of compressed FCF without the cost benefits the new aircraft are meant to deliver.

Regulatory and Legal Exposure. The ACCC secured court orders against Qantas in late 2024 for the "ghost flights" scandal (selling seats on cancelled flights). There may be further regulatory proceedings. Reputational damage in a brand-sensitive market like aviation carries lasting effects on yield and loyalty programme engagement.

Competition and Yield Normalisation. International yields remain elevated versus 2019 levels, and the domestic pricing environment has benefited from Virgin Australia's reduced capacity post-Bain Capital restructuring. These are cyclical tailwinds. If Virgin rebuilds aggressively or a new entrant attempts domestic scale, pricing pressure could return faster than the market currently prices.

Structural Equity Thinness. Book equity of A$783M against A$23.4B in assets is an extremely low equity ratio (3.4%). This reflects rational capital allocation — Qantas has returned enormous sums to shareholders — but it reduces the company's flexibility in a severe stress scenario. The market equity value of A$13.6B is the true buffer, but that can contract quickly in a downturn.

Section 11 — Analyst Consensus

Strong Buy	Buy	Hold	Sell	Strong Sell	Mean Rating	Mean Target
4	9	1	0	0	Buy	A$12.06

Analyst consensus is emphatically bullish with 13 buys/strong buys against 1 hold and zero sells. The mean target of A$12.06 implies +33% upside from A$9.09. Notably, the consensus is tracking well above the current price even after the stock's 12% YTD decline (vs ASX200 −11.9%). The market's underperformance relative to consensus in 2026 looks like an opportunity rather than a fundamental deterioration — the sell-off appears driven by global airline sector weakness and tariff-related demand uncertainty rather than Qantas-specific problems.

1. What Does Qantas Do?

Qantas is Australia's national airline and the dominant player in domestic flying. It operates four businesses: the main Qantas full-service airline (both domestic and international routes), the budget airline Jetstar, the highly profitable Frequent Flyer loyalty points program, and a freight division. With 365 aircraft and 27,000 employees, it's one of the largest companies on the ASX.

2. How Has the Business Been Performing?

Qantas had a disastrous COVID period — it lost close to A$4B over FY2020–FY2021. Since then, the recovery has been extraordinary. Revenue grew from A$5.9B in FY2021 to A$23.8B in FY2025, and the company earned A$1.6B in profit last year. Nearly 85% of seats are now filled on average, which is very high for the industry.

The one concern right now is cash flow. Qantas is in the middle of buying a lot of new aircraft — it spent A$3.7B on planes and infrastructure in FY2025 alone. This means the free cash left over after all expenses and investment was only A$454M. That's fine if you understand why it's happening (investing for the future), but it's a real constraint in the short term.

3. What Is It Actually Worth?

The most likely fair value under my base case analysis is around A$13.30 per share — about 46% above the current price of A$9.09. That's based on Qantas growing its earnings modestly over the next five years and generating a lot more free cash once the aircraft buying slows down. The 14 analysts who cover the stock agree: their average target is A$12.06, or 33% above where it's trading today. Even my pessimistic estimate (A$7.37) only implies about 19% downside from here.

4. The Savings Account Test

Right now, if you bought the entire business for its "sticker price" (A$19.2B including debt), the free cash flow of A$454M would give you a return of just 2.4% — worse than a term deposit. That sounds bad, but it's misleading. The real reason is that Qantas is spending A$3.7B on new planes this year, which crushes the free cash number. Normally — once that buying slows down — the free cash should be more like A$2B, which would be a 10.4% return. That's much better than a term deposit or the share market average.

5. Are There Any Red Flags?

I scored 12 areas of potential concern and found zero serious red flags. There are four yellow-light warnings worth noting: Qantas still carries some reputation damage from the previous CEO era and a recent court case about ghost flights; the CFO sold some shares last year (though the CEO bought shares); and the company uses some internal profit measures that need to be cross-checked against the official accounts. Nothing alarming, but these bear watching.

6. Bottom Line

Qantas is being mispriced by the market. The stock is trading as though the airline's best days are behind it, but the data says the opposite: it earns a return on its invested capital of ~21% against a cost of capital of ~8.5% — that's a genuinely exceptional result for any business, let alone an airline. The cheap valuation (4.3× operating earnings) reflects investor frustration with the high aircraft spending, but that spending is nearly complete and the benefits — lower fuel bills, more reliable aircraft, expanded capacity — flow through for years. The governance concerns are real but improving. I think A$9.09 is a patient investor's opportunity.