We Expect Air Travel Demand to Remain Subdued in the Near Term, but Qantas Looks Attractive

Shares in no-moat Qantas look undervalued, trading at a 22% discount to our unchanged AUD 4.70 fair value estimate. The near-term outlook remains bleak as domestic and international air travel grinds to a halt amid the ongoing coronavirus pandemic. The majority of Qantas' fleet is grounded and we forecast a full-year fiscal 2020 capacity reduction of 26% and an aftertax loss of AUD 86 million. However, Australia's proactive approach to containing the virus appears to be reaping benefits with relatively low case numbers and lockdown measures beginning to ease on a state-by-state basis. We continue to forecast a recovery in air travel demand, albeit with capacity not again returning to fiscal 2019 levels until fiscal 2022.