It has been a positive day for the Qantas Airways Limited (ASX: QAN) share price on Thursday.
At one stage today, the airline operator’s shares were up over 3% to $4.85.
The Qantas share price has since pulled back a touch but remains up 1.5% to $4.77 at the time of writing.
Why is the Qantas share price pushing higher?
Investors have been buying Qantas shares on Thursday after it announced a wet lease agreement with Alliance Aviation Services Ltd (ASX: AQZ) that will see the latter provide up to 14 E190 aircraft to Australia’s flag carrier airline.
A wet lease agreement is one where the lessor provides an entire aircraft and at least one crew member.
Alliance will initially provide Qantas with three E190 aircraft to commence operations in mid-2021. Qantas then has the option to call on an additional eleven aircraft based on market conditions.
According to the release, Qantas has made the move in order to meet an expected surge in local tourism demand once the country moves beyond sudden COVID-related border closures.
The Embraer E190 aircraft is a 94-seat jet with a five-hour range. Qantas believes this makes it well suited to linking regional centres with smaller capital cities. Judging by the Qantas share price reaction today, the market appears to agree.
What are the routes?
The initial routes that Alliance will fly for Qantas are expected to include Adelaide–Alice Springs, Darwin–Alice Springs, and Darwin–Adelaide.
The Boeing 737s that are currently used on these routes will be redeployed elsewhere in Australia. This is part of an ongoing ‘right aircraft, right route’ approach to the Qantas network.
QantasLink CEO, John Gissing, spoke very positively about the agreement. He feels it reflects the kind of flexibility Qantas needs to respond to opportunities without committing any capital.
He said: “We know this current climate of snap border closures will pass and we want to be ready for the recovery and for what is a structurally different market to what we had pre-COVID. The ability to switch on extra capacity with Alliance will help us make the most of opportunities in a highly competitive environment and having the right aircraft on the right route helps us deliver the schedule and network that customers want.”
Better economics
Mr Gissing notes that the E190 jets are perfectly suited to the routes that it is going to be flying.
He explained: “The E190 is a perfect mid-size regional jet for routes like these ones in northern Australia. It has longer range than our 717s and it’s about half the size of our 737s, which means the economics work well on longer flights between cities and towns outside of the top five population centres.”
“Instead of one or two flights a day with a larger aircraft, we can offer three or four flights a day on the E190, which gives customers in these cities a lot more choice about when they travel,” he added.
The agreement is also good news for Qantas international pilots and cabin crew that have been left without work because of COVID-19.
Mr Gissing commented: “Importantly, Alliance is keen to provide the opportunity for our international pilots and cabin crew to operate the E190s given it will be some time before overseas markets fully recover.”
Where next for the Qantas share price?
Although the Qantas share price has recovered strongly from its COVID-low, analysts at Goldman Sachs still see plenty of upside.
According to a note from 29 January, Goldman has a buy rating and $7.05 price target on its shares. Based on the current Qantas share price, this implies potential upside of almost 48% over the next 12 months.
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More reading
- ASX 200 down 0.7%: AGL & Origin sink lower, Qantas pushes higher
- Why Alliance Aviation, REA Group, SEEK, & Vulcan shares are charging higher
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- Alliance Aviation (ASX:AQZ) share price surges 13% higher on Qantas (ASX:QAN) deal
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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