Qantas gets first sell rating as cost of fixing brand mounts

Qantas Airways Ltd. was hit with its first sell rating in a year, a rare rebuke from a largely-loyal analyst community as concern mounts about the cost of repairing the airline’s bruised reputation.

CLSA’s Justin Barratt cut his recommendation on Qantas shares to reduce from accumulate, becoming the sole analyst with a sell rating on the airline among 17 tracked by Bloomberg. Qantas shares fell as much as 2.7% in early Sydney trading, extending their decline this month to 14%, making it the worst-performing Asian airline stock in September.

Qantas said Monday it will spend an extra A$80 million ($51 million) on passenger improvements in the year ending June 2024 — in addition to the previously allocated A$150 million — in a bid to soothe passengers disgruntled by cancellations, delays and long call-wait times.

CLSA’s downgrade was accompanied by a slew of cuts to stock-price forecasts for Qantas at major banks including Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan. Twinned with elevated fuel prices, the cost of making up with angry customers at Qantas is denting the confidence of analysts that for years have touted the airline’s prospects. 

The extra passenger investment and higher fuel costs “are expected to impact financial performance, with the company needing to balance the overall customer experience with profitability,” CLSA said in its report. There are “near-term headwinds the company will need to work through.”

There are even larger costs looming. Australia’s top court this month ruled that Qantas illegally sacked almost 1,700 ground workers during the pandemic, exposing the airline to compensation payments. At the same time, the country’s competition watchdog is suing Qantas for allegedly selling seats on flights that were already canceled. It wants a record fine of at least A$250 million to be imposed.

The revelations saw then-Chief Executive Officer Alan Joyce bring forward his retirement and step aside for Vanessa Hudson.

In an unprecedented move, the Australian & International Pilots Association, which represents more than 2,000 Qantas pilots, has also called on Qantas Chairman Richard Goyder to resign. 

“The reform and change that Qantas so desperately needs cannot come under this chairman,” Tony Lucas, president of the union, said in a statement. Goyder “has overseen what may well be one of the most damaging periods in Qantas’ history.”