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Qantas Airways (ASX:QAN) is back in focus after announcing international fare increases to offset higher jet fuel costs linked to conflict in the Middle East, while also considering extra capacity on Europe routes.

See our latest analysis for Qantas Airways.

The fare hikes and potential Europe capacity increase come after a softer period for the shares, with a 30 day share price return showing a 15.67% decline and a year to date return showing an 18.40% decline, even though the 5 year total shareholder return of 68.31% presents a very different longer term picture.

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With Qantas shares softer in recent months, yet trading at a discount to analyst targets and some measures of intrinsic value, the key question is simple: is this price weakness an opportunity, or is the market already factoring in future growth?

Most Popular Narrative: 3.6% Undervalued

Qantas Airways last closed at A$8.56, compared to a fair value of A$8.88 in the most followed narrative. This frames the current share price as slightly below that estimate and focuses on how the business has changed since the pandemic.

While the airline delivered record earnings following the post-pandemic travel rebound, the market is now reassessing how sustainable those profits are. In my view, Qantas represents a structurally stronger business than it was pre-COVID, but one whose valuation must reflect more normalised earnings.

Read the complete narrative.

Curious what sits behind that view on Qantas being a stronger business today? The narrative focuses on future cash flows, margin normalisation and a specific future earnings multiple to support that A$8.88 fair value. The tension between cyclical earnings and recurring loyalty income is central to the model, and the conclusion may surprise you.

Result: Fair Value of A$8.88 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, this hinges on fuel costs and wage pressures staying manageable, and on travel demand not softening enough to undermine the earnings base implied in that A$8.88 view.

Find out about the key risks to this Qantas Airways narrative.

Next Steps

If this mix of risks and rewards around Qantas feels finely balanced, take a moment to look through the full picture yourself and move quickly to shape your own view. Start with 5 key rewards and 3 important warning signs.

Story Continues

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include QAN.AX.

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