A kangaroo bounding across a paddock is the epitome of speed, power and elegance. In much the same way, watching Australia's flying kangaroo, Qantas, bound out of COVID-19 is equally breathtaking, with the airline again upgrading its profit forecast for 2022/23.

Yesterday, Qantas informed the market it expects an underlying profit before tax of between AU$1.35 and AU$1.45 billion ($910.1 - $977.5 million) for the first half of its 2022/23 financial year. This is around AU$150 million ($101 million) higher than the half-year (July-December) profit it forecasted just last month, highlighting just how quickly Qantas is accumulating cash. Its balance sheet is also on the up, with net debt expected to fall between AU$2.3 to AU$2.5 billion ($1.54 - $1.67 billion) by the end of the year, AU$900 million ($605 million) better than the last forecast.

Is the cozy duopoly coming back?

These profits come at a time when the airline's annual fuel bill is forecast to reach AU$5 billion ($3.37 billion), with high airfares, high demand and constrained capacity driving up revenues. For most of its life, Australia's commercial aviation industry has operated as a very cozy duopoly resulting in high fares, and there are ominous signs that approach is returning in this post-pandemic environment.

Typically the two leading domestic carriers, who are now Qantas and Virgin Australia, have used capacity and low prices as their competitive weapons of choice, but with high passenger load factors (PLFs), capacity is not coming online ahead of bookings. The recent official statistics show domestic loads above 80% and international loads hitting a record 89%, peaking at 98.9% on Qantas flights from Johannesburg, Bali and Rome. Giving an insight into what's driving the surging profitability, Qantas said:

"Consumers continue to put a high priority on travel ahead of other spending categories, and there are signs that limits on international capacity are driving more domestic leisure demand, benefiting Australian tourism."

Adding more international capacity

Qantas' international capacity is 30% below pre-COVID levels, and the return of more Airbus A380s is addressing that. International fares are through the roof, but many carriers are now resuming or adding more services into Australia, so the outlook for lower fares in 2023 is promising. Airlines from all points, including Emirates, Qatar Airways, United Airlines, American Airlines, Singapore Airlines, Thai Airways, Vietnam Airlines, Air New Zealand and Delta Air Lines are all looking to cash in on the demand of Australians for restriction-free international travel.

Qantas, once one of Australia's most trusted brands, has significantly fallen out of favor with the traveling public and media this year. Once it finally realized how deep that hole was, the airline lifted its game and is now leading the country in operational performance.

Well aware of the unpopular link between massive profits and high fares, Qantas announced one million sales fares in October and said more sales are planned in the coming weeks. Catering to the airline's frequent flyers are more than five million reward seats and the release of more Points Planes, where every seat is available using reward points.

Up with the big players

Its vastly improved outlook and rising share price have pushed Qantas into the world's top ten airlines (by market capitalization), now sitting in equal tenth place with IAG Group, owners of British Airways and Iberia. With a market cap of AU$11.85 billion ($7.99 billion), Qantas is closing in on American Airlines, Lufthansa and heading towards Japan's All Nippon Airways. Market commentators say that another 2022/23 profit upgrade or a new share buyback could see Qantas move into the top five, a massive achievement for an Australian airline.

However, while it is all bouquets today, Qantas must successfully navigate the upcoming peak holiday season to maintain credibility with the public.

Do you think it has recovered enough to achieve that? Let us know in the comments.

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  Qantas

  IATA/ICAO Code:

  QF/QFA

  Airline Type:

  Full Service Carrier

  Hub(s):

  Brisbane Airport, Melbourne Airport, Sydney Kingsford Smith Airport

  Year Founded:

  1920

  Alliance:

  oneworld

  CEO:

  Alan Joyce

  Country:

  Australia