Brokers slash Qantas valuations as cost of reputation damage mounts

afr.com:

Qantas shares fell on Tuesday after brokers began downgrading the stock, concerned higher spending on repairing its relationship with customers and higher fuel expenses will end a run of higher profits.

CLSA became the first major broker to recommend clients sell Qantas shares in a year, while Citi analysts cut the company’s valuation by 14 per cent to $6 per share. Qantas fell as much as 2.7 per cent in early trade on Tuesday.

On Monday, Qantas announced it would spend at least an extra $80 million to resolve service issues even while fuel costs have risen by $200 million. It’s the first hit to profits from initiatives put in place to resolve mounting customer acrimony about delayed flights and poor service.

Qantas’ new spending will hurt profits, with brokers downgrading the company’s share price target. Oscar Colman

Senior executives are expected to face a Senate inquiry on Wednesday. The inquiry is investigating why the government blocked Qatar Airways, a major Qantas competitor, from flying more services to Australia and what role – if any – was played by the national carrier in lobbying for that decision.

While investors have benefited from a surge in airline profits as demand for travel increased following the COVID-19 pandemic, disquiet is growing at how much Qantas will have to spend to retain customers and deal with legal and regulatory issues that accumulated under the company’s former chief executive, Alan Joyce. Mr Joyce left two months before he was due to depart, handing over to chief financial officer Vanessa Hudson this month.

Ms Hudson has flagged the company would consider bringing call centres back to Australia, opening up more frequent flyer seats, and making other changes to rebuild its reputation.