Qantas is winding up its Singapore-based intra-Asia airline, Jetstar Asia, with a final day of operation on July 31, 2025. Qantas expects the budget brand to post an underlying EBIT loss of AUD 35 million in fiscal 2025. Redundancy and restructuring costs are expected to be about AUD 175 million.

Why it matters

We make only minor changes to our forecasts to adjust for the closure of Jetstar Asia in fiscal 2026, including one-off costs, and slightly lower than expected capacity in fiscal 2025. Our fiscal 2025 underlying pretax profit forecast remains AUD 2.3 billion.

  • The budget brand has struggled to match the performance of the Australian business in the face of elevated competition and elevated input costs (including airport fees). Notably, this does not affect Jetstar’s international services between Australia and Asia.
  • Jetstar Asia’s 13 A320s will be redeployed to the core Jetstar businesses in Australia and New Zealand, including replacing some leased aircraft.

The bottom line

We raise our fair value estimate for no-moat Qantas by 38% to AUD 9.00 per share implying a fiscal 2025 price/ earnings ratio of 9 and an enterprise value/ EBITDA of 4.

While we make only minor changes to our earnings forecasts, we separately lower our discount rate for Qantas, materially boosting our valuation.

  • Our prior discount rate was predicated on the elevated risk of material shareholder value destruction before, with highly leveraged balance sheets and earnings volatility inherent in air travel. But we think Qantas is now in a much stronger financial position.
  • We reduce our cost of equity assumption to 11%, from 13.5% previously. This now matches our global airline coverage for names like Delta and Cathay Pacific.

Big picture

Despite the large increase to our valuation, shares remain expensive. Qantas has been overearning, with double-digit returns on invested capital since fiscal 2023. But we think barriers to entry in air travel remain low, and competition with Virgin is likely to weigh on price growth.

Bulls say

  • Qantas’ earnings are highly leveraged to improving macroeconomic conditions and unrestricted air travel.
  • The two-brand Qantas and Jetstar strategy provides flexibility to align capacity and costs with prevailing demand and economic conditions, without affecting the Qantas brand and service perception.
  • The Qantas Frequent Flyer program continues to deliver strong earnings and cash flow, underpinning dominant domestic market share.

Bears say

  • Qantas is exposed to cyclical factors outside management’s control, including passenger demand, fuel prices, and exchange rates.
  • Qantas operates in a highly competitive industry and spare industry capacity can lead to downward pressure on fares and profitability.
  • Competition is set to increase. Virgin is back flying domestically, and set to become a more formidable international competitor through a partnership with Qatar Airways.

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