Shares in Australia’s largest airline operator, Qantas Airways Ltd [ASX:QAN], have risen by 98% from the June low last year.
Why are Qantas Shares up 98%?
There are two things happening. One, the airline is benefiting from the rise in tourism, especially from China.
Four decades ago, 10 visitors from China arrived here each week. During 2016, the same number arrived every five minutes.
A recent survey indicated there are now 100 million Chinese people with sufficient income for foreign travel. That number is forecast to double by 2025.
Qantas controls a large share of the domestic market. Chinese tourists on average take two or three domestic flights during their stay. It’s huge for the local carrier.
More than a million Chinese visited our shores last year, a 17% increase on 2015, and the trend shows little sign of stopping.
On top of this, Qantas’ loyalty business is delivering stellar revenue growth, and is becoming its most profitable unit.
Qantas sells air miles or points to supermarkets, retailers and other partners. And every point Qantas sells is done at a profit, because it costs Qantas less to redeem these points than to sell them.
They’ve already got 12 million members in Australia; with every new member they sign up, it creates further incentives for retailers to get on board and buy more points from Qantas. That’s because it generates sale revenues for them and is a way of rewarding their own customers.
By 2020, the loyalty division is expected to be Qantas’ biggest contributor to profit.
What now for Qantas Airways Ltd?
The company is riding the growth in tourist numbers and increasing revenues from its loyalty business.
The share price has really run in recent weeks. Stocks do not go up in a straight line, they must retrace. Qantas is one for the watch list; it warrants further study on any retracements when they come in.