Why the Qantas Share Price Continues to Fall

What happened to the Qantas share price?

Shares in Qantas [ASX:QAN] continue to remain under pressure, having fallen 28% from their April high. Looking like it had gained support at the start of May, the share price broke down further again this week, dropping 6%.

Why did Qantas do this?

From late 2014, the Qantas share price had enjoyed a stellar run. Qantas’ shares tripled in value, from $1.40 to a high of $4.25 within 12 months. Long awaited aircraft rationalisation, along with structural changes to the company, looked like they were finally starting to make some money.

The biggest boon for Qantas, though, was the 70%-plus fall in the price of oil — a major cost to all airlines. However, as the oil price continues to recover off its January lows, Qantas is also being hit by another issue — excess capacity from softening demand. An update on the March capacity and traffic numbers saw the share price fall 15% over just two days.

What now for Qantas?

The future for Qantas will be determined by two things: the price of oil, and any uptick in demand. Airlines have always been regarded as a high volume, low margin business. Every vacant seat and plane sitting idle has a big impact on profitability.

Right now, these two things are conspiring against Qantas. For market sentiment to turn back in Qantas’ favour, it will need for demand (and the economy) to pick up, and for the oil price to roll over again.

Matt Hibbard,

Money Morning

Money Morning Australia