Qantas shares were just downgraded but I still rate them as a buy

Morgans might already be regretting its decision to downgrade Qantas Airways Ltd (ASX: QAN) shares this week.

Shortly after the broker lowered its recommendation and price target, the airline announced plans to cut approximately 850 corporate jobs as part of a major technology overhaul.

Investors welcomed the news, sending Qantas shares 6.3% higher on Tuesday to finish at $9.90.

Why did Morgans downgrade Qantas shares?

According to its note, Morgans downgraded Qantas shares from accumulate to hold and reduced its price target from $10.60 to $9.60.

The downgrade followed Qantas' latest trading update, which revealed that its first-half FY 2027 fuel bill is now expected to reach approximately $3.75 billion, up from its previous forecast of $3.6 billion. The broker explained: 

1H27 fuel costs have increased to ~$3.75bn from $3.6bn at the FY26 result, reflecting elevated oil prices and jet fuel crack spreads. Despite the higher fuel burden, travel demand remains resilient, with Domestic and International TRASK expected to increase 8-10% in 1H27, as QAN continues to offset cost pressures through higher fares and strong load factors. 

Domestic capacity has been reduced further, with Group Domestic ASKs now expected to decline 3% in 1H27 and 4% in 3Q27, whilst International Capacity for 1H27 is increasing modestly to +4%. We downgrade our recommendation to HOLD (previously ACCUMULATE) with a reduced price target of A$9.60ps (previously A$10.60ps).

Accenture news

On Tuesday, Qantas revealed further efforts to improve operating efficiency.

The Flying Kangaroo has entered into a partnership with Accenture (NYSE: ACN) to modernise its technology systems and increase its use of artificial intelligence.

The changes will affect approximately 850 corporate roles over the coming years, with some functions moving to Accenture teams in Australia and India.

Although the scale of the potential savings hasn't been disclosed, it seems apparent that the initiative could help Qantas simplify its operations and reduce costs over time.

Why I still rate Qantas shares as a buy

While I understand Morgans' concerns about higher fuel costs, I believe the airline has the potential to become significantly more profitable over the coming years.

Australia's domestic aviation market is heavily concentrated, giving the Qantas group a strong competitive position. Its growing loyalty business also provides a valuable source of earnings.

But the biggest opportunity, in my opinion, is the transformation of its aircraft fleet.

Through Project Sunrise and its broader fleet renewal programme, Qantas is introducing modern aircraft that can fly further, operate more efficiently, and provide a better experience for passengers.

Project Sunrise will introduce non-stop flights from Sydney to London in October 2027, with New York to follow.

Management expects Project Sunrise and the associated network improvements to generate approximately $400 million in additional annual operating earnings once the fleet reaches scale.

I believe this could leave Qantas with structurally stronger earnings. And despite Tuesday's rally, I still think its shares look cheap.

Based on current consensus estimates, Qantas shares are trading on PE ratios of approximately 7.6 times FY 2028 earnings and just 6.6 times FY 2029 earnings.

Even allowing for the risks associated with airlines, I think these multiples look very attractive given the company's growth opportunities.

The post Qantas shares were just downgraded but I still rate them as a buy 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 positions in and has recommended Accenture Plc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2028 $260 calls on Accenture Plc and short January 2028 $280 calls on Accenture Plc. 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.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2026