Qantas' Strategic Fleet Renewal and Profitability Upside in 1H26

Qantas is undergoing a transformative phase that positions it as a compelling investment opportunity in the post-pandemic aviation sector. By leveraging a $13 billion fleet modernization program, the airline is not only addressing operational inefficiencies but also unlocking significant profitability and shareholder returns. With the first half of fiscal year 2026 (1H26) on the horizon, Qantas' strategic focus on next-generation aircraft, cost discipline, and demand-driven growth is set to amplify its EBIT (Earnings Before Interest and Tax) and deliver value to investors.

Fleet Renewal: A Catalyst for Efficiency and Route Flexibility

Qantas' 2025 fleet renewal program has been a cornerstone of its strategy to reduce fuel consumption and expand route networks. The airline has introduced 28 Airbus A321XLRs and four A220-300s, replacing aging Boeing 737-800s and 717s. These aircraft offer a 40% reduction in fuel burn per seat compared to their predecessors, translating to an estimated $150–200 million in annual earnings by 2027. The A321XLR, in particular, is a game-changer: its 4,700-nautical-mile range allows Qantas to operate direct flights to destinations like Darwin, Perth, and even Southeast Asia, eliminating the need for widebody aircraft and reducing costs.

The A220-300s further enhance operational flexibility, offering a 25% increase in capacity over the 717s they replace while nearly doubling their range. These aircraft are projected to deliver up to $9 million in annual EBITDA benefits per unit, contributing to QantasLink's cost efficiency and profitability. Meanwhile, the A321XLR's entry into service in mid-2025 has already positioned Qantas as the first Asia-Pacific carrier to operate this aircraft type, giving it a competitive edge in route development and customer satisfaction.

Operational Efficiency and Cost Discipline: Driving EBIT Growth

Qantas' fleet modernization is directly tied to its EBIT growth trajectory. In FY25, the Group Domestic segment reported $1.52 billion in underlying EBIT, a 12% increase year-over-year, driven by a dual-brand strategy that captures both premium and low-fares markets. Jetstar's performance was particularly striking: its record 16 million domestic passengers and 55% surge in underlying EBIT underscore the benefits of new aircraft like the A321LR and A320neo, which have improved fuel efficiency and customer satisfaction.

Operational reliability has also improved, with Qantas achieving its best domestic on-time performance since 2019 (82% in H2FY25) and Jetstar improving by 3 percentage points. These gains are supported by digital initiatives, such as enhanced self-service apps and real-time flight updates, which reduce operational friction and enhance the customer experience.

Cost management remains a priority. Qantas is targeting $400 million in CPI offsetting savings in FY26, with 35% expected in 1H26. These savings will mitigate pressures from rising engineering costs, wages, and airport charges, ensuring that fleet renewal benefits are not eroded by inflation. The airline's liquidity position—$11.5 billion in total liquidity as of December 2024—provides a buffer to sustain these initiatives while funding shareholder returns.

Demand Trends and Strategic Network Expansion

Strong travel demand is another tailwind for Qantas. Group Domestic unit revenue is projected to grow 3–5% in 1H26, supported by a 3.5 percentage point improvement in seat factors and increased business travel. Jetstar's redeployment of 13 A320 aircraft from its closed Jetstar Asia operation will further expand its network, enabling better route coverage and capacity.

Internationally, Qantas International's unit revenue is expected to rise 2–3% in 1H26, driven by the return of premium cabin demand and the deployment of A350-1000ULR aircraft for Project Sunrise. While the first nonstop Sydney-London flight is slated for mid-2027, the groundwork laid in 2025—such as the return of an A380 to increase capacity by 6%—has already boosted EBIT by 20% in FY25.

Shareholder Returns: A Reward for Strategic Execution

Qantas' profitability is translating into tangible shareholder returns. In FY25, the airline resumed dividends for the first time since 2019, distributing $800 million in base and special dividends. Share buy-backs of $431 million in H1FY25 further underscore its commitment to capital discipline. With a forward dividend yield of approximately 4.5% and a P/E ratio of 12x, Qantas appears undervalued relative to its long-term earnings potential.

The airline's balance sheet strength—$4.1 billion in net debt within its target range—supports continued returns. Additionally, Qantas' $400 million investment in Sustainable Aviation Fuel (SAF) and decarbonization projects aligns with ESG priorities, enhancing its appeal to impact-focused investors.

Investment Thesis: A High-Conviction Play

Qantas' strategic fleet renewal, operational efficiency, and demand-driven growth create a compelling investment case. The airline's ability to reduce fuel costs by 25–30% per seat, expand route networks with new aircraft, and maintain disciplined cost management positions it to outperform peers in 1H26. With EBIT projections rising and shareholder returns resuming, Qantas offers a rare combination of near-term profitability and long-term resilience.

For investors, the key risks include transition costs (estimated at $160 million in FY26) and fuel price volatility. However, Qantas' hedging strategies and focus on CPI offsetting savings mitigate these risks. Given its strong liquidity, strategic clarity, and alignment with global aviation trends, Qantas is a high-conviction buy for those seeking exposure to a well-positioned airline navigating the post-pandemic recovery.