Qantas Airways Ltd. (ASX: QAN) has captured investor attention with an impressive turnaround in 2024. After a strong year, Qantas shares are trading 15% above pre-COVID levels, making investors wonder: Is Qantas stock still a good buy? Let’s break down recent insights and see if the airline giant’s shares are set for more gains or if it's time to hold off.

Qantas' Share Performance in 2024: A Stellar Year

Qantas shares have rallied in 2024, supported by strong domestic travel and lower oil prices. Starting the year at $5.35, the stock has climbed over 56%, now trading around $8.34. In comparison, the broader S&P/ASX 200 Index (ASX: XJO) has risen by just over 7% this year. This robust performance has put Qantas on many investors’ radars, positioning it as one of the top-performing ASX shares.

What’s Fueling the Surge in Qantas Stock?

Several factors have contributed to Qantas’ resurgence:

Resilient Travel Demand

Following years of instability, Qantas now enjoys a steady demand for domestic and international travel. After navigating travel restrictions and industry upheaval during the pandemic, Qantas’ strong revenue in the post-COVID era indicates a thriving airline sector that benefits from travellers’ renewed eagerness to fly.

Decline in Crude Oil Prices

With fuel costs often a significant expense for airlines, the recent decline in oil prices has played a major role in improving Qantas’ profit margins. Lower oil prices help the airline save on operational costs, allowing for potentially higher returns to shareholders.

The Return of Dividends

Qantas hasn’t paid dividends since 2019, when its stock traded at a 4.5% fully franked dividend yield. The pandemic derailed these payouts as the company worked to manage its substantial losses. However, analysts now anticipate that Qantas might resume dividends in fiscal year 2025, providing a potential income stream for shareholders.

Recent Financial Snapshot: Strong Revenue, Profit Decline

In its FY 2024 report, Qantas posted revenue of $21.9 billion, marking a 10.7% increase year-over-year. However, profit dipped by 16% to $2.08 billion compared to FY 2023. This decline didn’t seem to dampen investor sentiment; the stock rose by 0.8% after the results were announced, signalling confidence in the airline’s future growth.

Vanessa Hudson, CEO of Qantas, echoed this optimism, stating that the airline’s “strong financial performance and balance sheet” will enable it to continue investing in a significant fleet renewal program. This investment is expected to enhance customer experience, improve operational efficiency, and create long-term value for shareholders.

Qantas’ Tax Position: Zero Tax Payments in 2023

One interesting factor for investors is Qantas' tax position. According to the Australian Tax Office (ATO), Qantas reported no tax obligations due to tax offsets and carry-forward losses from the pandemic years. This strategy allows the company to utilise previous losses to offset current tax liabilities, which is a common accounting practice and legally permissible.

While Qantas benefits from this tax advantage, other ASX giants, such as mining companies BHP and Fortescue Metals Group, paid substantial taxes due to high commodity prices. Investors should note that while Qantas' zero tax payments improve cash flow and profit potential, this advantage might be temporary. In future years, as losses are fully offset, Qantas will likely resume tax payments.

What Investors Should Consider: Qantas’ Growth and Potential Risks

While Qantas has shown remarkable growth, it’s crucial to weigh potential risks before jumping in.

Economic Uncertainty

While demand for travel remains strong, economic uncertainty could dampen consumer spending on leisure travel, impacting Qantas’ revenue.

Return of Dividends

For income-focused investors, Qantas’ anticipated dividend resumption in 2025 could be an attractive feature. However, this remains speculative, and dividends may vary depending on the airline’s performance and market conditions.

Competition and operational Costs

Qantas competes in a highly competitive industry, facing both domestic and international players. Additionally, while oil prices are currently favourable, any rise could increase operational costs, putting pressure on profit margins.

Will Qantas Stock Continue to Climb?

Qantas’ strong comeback and stable market demand provide a solid base for continued growth. Its strategic fleet investment and potential dividend resumption are positive indicators for investors. However, external factors like economic shifts and oil price volatility could impact its future trajectory. For investors considering buying Qantas shares, the airline's growth potential appears strong, but it may be wise to keep an eye on market conditions and travel demand as we head into 2025.