Qantas [ASX: QAN] recently spent billions to replace the last of its ageing fleet of jumbo jets.
The consistent spending and looming fuel price increases have resulted in a share drop of 1.10%.
Qantas are not fazed by the drop.
Their primary focus is placed on upgrading their jets.
Overextending their spending
Qantas are aware their customers are looking at alternative forms of travel and have decided to cater to their needs.
As a result, they have ordered a set of dream liners, a brand new variety of jets.
Qantas believe they can easily cover all their costs, as they have displayed a strong financial performance in recent years.
However, this confidence has shown to be dangerous as their consistent spending is beginning to affect their share price.
The airline group is focusing too much on buying rather than handling its services.
The Sydney Morning Herald reported that CEO Alan Joyce stated:
‘We made the choice to go for brand new aircraft and the business case works with either lower fuel than it is today, and certainly if fuel is higher it really really works, so that made the business case even stronger.’
Qantas have also suffered due to rising oil prices, which are its largest expense.
This financial year, oil will be priced $200 million higher than last year.
Whether Qantas will be paying in cash or taking on a large amount of debt for the new aircrafts is currently unknown.
However, the company have stated that they’ve earned enough money that they can buy the jets outright.
The higher fuel price has not completely derailed Qantas, but it doesn’t help with lining up their expenses and further costs. As such, if fuel prices continue to increase Qantas’ share price may be affected.
Ideally Qantas will reign in their spending to avoid their share price falling even further.
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