Qantas shares down on update: Should I buy the dip?

Qantas Airways Ltd (ASX: QAN) shares are trading lower on Friday after the airline released a market update ahead of its annual general meeting.

The update contained some disappointing news for investors. But could this be an opportunity to buy?

What did Qantas announce?

The biggest concern in Qantas' update was the rising cost of fuel. Management now expects its fuel bill to reach approximately $3.75 billion in the first half of FY 2027. This is up $150 million from its previous forecast.

And with fuel prices expected to remain elevated throughout the financial year, there's a risk that these additional costs could weigh on profitability.

However, there was also some encouraging news. The Flying Kangaroo revealed that demand for international travel remains strong, while domestic leisure travel is holding up well.

Importantly, the airline maintained its guidance for domestic and international total revenue per available seat kilometre to increase by 8% to 10% during the first half.

This appears to suggest that Qantas is having some success in adjusting airfares and flight capacity to account for higher fuel costs.

The company also reaffirmed its expectation that Qantas Loyalty will deliver underlying earnings growth of 5% to 7% in FY 2027.

Would I buy the dip?

Despite the challenges facing Qantas, I think there is a buying opportunity for long-term investors.

One reason is that the airline has demonstrated an ability to respond to rising costs through pricing and capacity adjustments.

Of course, there's a limit to how much airlines can increase fares before customers start looking for cheaper alternatives or travelling less.

But with demand remaining resilient, I believe Qantas is in a reasonable position to manage the current environment.

I'm also feeling positive about the company's longer-term prospects. Qantas is investing heavily in renewing its aircraft fleet, with newer planes expected to deliver fuel efficiency improvements of up to 15% to 25% per seat on comparable routes.

This could deliver substantial savings over time, while allowing the airline to offer customers new destinations and services.

Its Project Sunrise initiative, which will introduce ultra-long-haul flights, is another opportunity to strengthen its international operations. And with Qantas Loyalty continuing to grow, the company has an additional earnings stream that isn't directly exposed to aviation fuel costs.

Higher fuel prices are certainly a challenge, and I wouldn't rule out further weakness in the company's shares.

Nevertheless, I believe Qantas has attractive long-term growth opportunities that extend well beyond the current financial year.

For that reason, and with its shares down 15% from their high, I'd be happy to take advantage of Friday's weakness and buy Qantas shares for the long term.

The post Qantas shares down on update: Should I buy the dip? appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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 Scott Phillips.

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