Incoming Qantas (QAN) CEO Vanessa Hudson is faced with an aging air fleet and renewed competition in the tightly fought air travel sector when she takes over from longtime airline chief Alan Joyce later this year.

That’s according to Morningstar analyst Angus Hewitt, who says Hudson was the “odds-on favourite” to take up the role since rumors of Joyce’s retirement began to circulate.

The company revealed on Tuesday that Joyce will officially step-down form the top job in November, after more than 15 years at the helm of the national carrier.

Hudson joined Qantas in 1994 and took the role of chief financial officer in 2019. When she steps up in November, Hudson will be the company’s first female CEO in its century-long history.

Qantas shares slipped a slight 2.5% on Tuesday, but remain within “fairly valued” territory, according to Morningstar’s unchanged fair value estimate of $5.90.

QAN share price

Hudson to oversee $15b fleet upgrade


As incoming CEO, Hudson is eyeing significant capital expenditure over the coming years, according to Hewitt.

"Qantas' fleet of more than 300 planes represents substantial capital investment, and COVID-19 delays and cancellations in aircraft deliveries have exacerbated Qantas' already ageing fleet," he says.

Hewitt estimates Qantas' fleet to be about 14 years old on average, which compares with around 11 years old and 9 years old, respectively, for competitors Virgin Australia and Air New Zealand (AIZ).

That means more investment is required, Hewitt says, forecasting Qantas will outlay more than $15 billion in capital expenditure over the next five years, compared with about $7 billion in the past five.

“Over the long term, we expect fleet expansion, replacement, and refurbishment to absorb meaningful cash flow and constrain returns to shareholders,” Hewitt says. 

Profits soar but renewed competition incoming


Two years of restricted travel and border closures have driven a revenge travel boom, at a time when supply is struggling to keep up with demand. That means planes are full.

Hewitt says operational conditions are operational conditions are “as good as it gets” for Qantas, which swung back into profits earlier this year, after posting $1.4 billion in underlying pretax profit in its interim fiscal 2023 results.

“Air travel demand remains strong, capacity is still constrained, and jet fuel prices have moderated,” he says.

But while Qantas is enjoying record profitability in fiscal 2023, Hewitt says pricing competition is expected to return as capacity bottlenecks—particularly labour shortages—ease for Qantas and its competitors.

That means competition in the tightly fought air travel sector is likely to heat up after a pandemic-induced lull.

“Domestically, Virgin Australia is looking to pick up share ahead of a potential float in 2023, regional competitor Rex has expanded its domestic footprint into more lucrative routes since the onset of the pandemic, and new private equity-backed budget upstart Bonza has started flying, targeting tourism hotspots,” he says.

Joyce’s tenure brought ‘tight cost control’


Hewitt says Joyce’s time as head of the airline was characterised by improved earnings, tight cost control, and headcount reductions.

After taking up the helm in 2008, Joyce helped navigate the company through several crisises, including the fallout from the GFC and more recently the COVID-19 pandemic and its devastating effect on global air travel.

Notably in 2011, Joyce made the controversial decision to ground the airline’s entire mainline fleet following a protracted industrial action dispute.

Over his 15-year reign, Qantas shares have risen more than 170% in value, but remain around 10% below their pre-pandemic peak.

 

This compares to a rise of around 110% for the S&P/ASX 200 over the same 15-year period.

Shares in Qantas last traded at $6.54 per share, a 10% premium to Morningstar’s FVE of $5.90.