Qantas Banks On Sunrise’s Premium Offering

This story features QANTAS AIRWAYS LIMITED.
For more info SHARE ANALYSIS: QAN
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Project Sunrise is moving from a strategic goal to reality over the next 18-months with analysts cautiously optimistic but awaiting more details.

• Qantas aims for a premium service with less flying time for aircraft upgrade
• Successful historical long-haul cases underpin the business case
• Analysts looking to August FY26 results for more colour around aircraft transition 
• Consensus positioned for 6.4% EPS growth next year

By Danielle Ecuyer

Is long-haul non-stop travel the key to success?

Qantas Airways’ ((QAN)) Sunrise Project has been almost nine years in the making.

Then CEO Alan Joyce threw down the gauntlet to Boeing and Airbus in August 2017 to develop an aircraft capable of flying non-stop long-distance prime routes from Sydney to London and Sydney to New York.

The proposition behind the project is relatively simple. Management has made an investment decision based around passengers being willing to pay a premium to shorten travel times between Sydney and the world’s two dominant long-haul routes, as well as financial, cultural and business hubs, London and New York.

The business investment case is predicated on a targeted $400m in earnings (EBIT) contribution by around FY30 when the twelve aircraft are in operation.

For the historical buffs, Project Sunrise is a tip of the hat to the airline’s famous “Double Sunrise” flights during World War II.

These were ultra-long-haul Catalina flying boat services operated between Western Australia and Ceylon (now Sri Lanka) that remained airborne for so long, typically 27 to 33 hours, that passengers and crew saw two sunrises during a single journey.

The Sydney to London route is already one of the major routes for Qantas, as aptly indicated by flight tags QF1 and QF2.

Equally, the evolution of long-haul air travel from Australia to the UK and US has seen major competitors develop larger-scale services to compete in the ‘once’ necessary stopover hubs.

Think of the growth of high-end Middle Eastern airlines and the popularity of the Dubai and Doha stopovers, or Singapore and Hong Kong hubs, as transfers or stopovers on the way to London.

Post-pandemic travel has been transforming to what the analyst at Citi describes as “premiumisation”. The consumer has become more disposed to the experience and is willing to pay more.

The Sunrise opportunity is equally supported by Australia’s tyranny of distance, Qantas proposes. Our location is both a blessing and a curse (speaking proverbially).

For Qantas’ longer-term vision, the Sunrise innovation, as observed by UBS, is unlikely to be replicated by competitors. Only the distance afforded by the Australia/New Zealand geographical locations can make an ultra-long-haul fleet viable.

For northern hemisphere carriers, there are insufficient use cases to monetise the aircraft investment.

What analysts discovered, or not, in Toulouse

Those analysts lucky enough to attend the launch were hosted by both Qantas and Airbus, where the new Project Sunrise A350-1000ULR aircraft was showcased, with Morgan Stanley pointing out the intangible, yet significant, relationship between the airline and the aircraft manufacturer.

Twelve aircraft are expected and will form the basis of the Project Sunrise fleet, with delivery from late 2027.

The Sydney to London route would start in October 2027 and be ‘on sale’ from February 2027.

Apart from the $400m EBIT target, details were limited, with Jarden noting a lack of more colour around how the earnings goals would be achieved against a backdrop of higher fuel costs and strong premium cabin demand.

Management did explain Qantas is aiming for a circa 20% yield premium relative to the existing operating fleet.

UBS observes management’s business case assumes over a 30% uplift in RASK (Revenue per Available Seat Kilometre) compared to the circa 20% RASK premium achieved on the existing long-haul Perth-London service versus Sydney-Singapore-London.

The 30% RASK premium will be underpinned by the seat configuration, with the 41% premium cabin mix contributing two thirds and higher ticket prices contributing one third.

The case implies to the UBS analyst that passengers will be willing to pay over 10% more for non-stop versus one-stop trips on the two major long-haul routes.

Citi points out this is an 11%-point increase to a 41% premium mix (non-economy seats) versus around 30%, currently.

A load factor of some 85% is assumed, which is presumed by Citi to be better or at least in line with the current larger A380s with 485 seats versus the A350 at 238 seats.

From a physics perspective, to achieve the 20-22-hour flight time in the air, the weight-to-fuel ratios had to be changed, i.e. more fuel needed and less weight, which equates to smaller capacity.

The business case also assumes a relatively negligible response from competitors.

For those not accustomed to the financial metrics of airlines, the fleet capex is particularly large and must be monetised over a period to make it viable.

Business case assumptions

Reading between the analysts’ commentary, to make Project Sunrise viable, several assumptions have been made, like load factors and price rises, as well as the ongoing trend in premiumisation, to make the investment case work.

Citi, notably, points out management’s aim to nearly double international profit is viewed as a “somewhat material hurdle”.

UBS observes the Qantas International segment has generated an average EBIT rate of around $500m p.a. over the last ten years, ex Covid, albeit earnings were boosted by fleet impairments, which lowered depreciation and amortisation charges by around $200m per annum.

Qantas is aiming to double international income post a rise in capacity of 15%-20%.

Project Sunrise also coincides with a yet undecided retirement plan for the carrier’s aged A380 fleet. As the UBS analyst ponders, “how much Sunrise capacity is growth versus replacement remains an open question”.

Management is expected to detail its full international fleet strategy at the August FY26 earnings results announcement.

Morgan Stanley focuses on the potential value proposition for consumers, a travel time saving of some three-to-four hours in exchange for a circa 15%-20% ticket price premium.

This analyst considers the product to be far more curated, with the premium offering focusing on jet lag reduction (custom lighting for adjusting to new time zones), wellbeing (dedicated space for stretching, hydration and refreshments), comfort (spacious, ergonomic cabins), as well as entertainment, including WiFi.

Brokers views and ratings

Strategically, for Morgan Stanley, Project Sunrise is the evolution of the ‘Flying Kangaroo’s’ route (started in 1947), building on the successful long-haul strategy and existing experience from other routes, such as Perth-London, Auckland-New York and Sydney-Dallas.

From a historical perspective, Qantas grew its Perth-London market by 24% to 56k in the year to Feb 2019 and increased its premium share by 29%-points. The route also achieved a circa 20% average RASK premium versus one-stop routes from FY19-FY25, with over 90% load factors.

Even the upbeat Morgan Stanley acknowledges the associated risks to Project Sunrise, including more aircraft delays, structurally higher fuel prices and any erosion in demand for premium price and quality air travel.

Ord Minnett has focused on the expected reduction in the average age of the Qantas aircraft fleet to 11 years by 2033, down from 15 years in 2025, which is in line with global peers.

Like other brokers, Ord Minnett anticipates long-haul A350 flights will appeal to higher-margin customers who will pay more for convenience and time savings, as well as an improved in-flight experience.

FY26 earnings are trimmed slightly due to the Middle East travails, with FY27 and FY28 EPS forecasts raised by 9.4% and 1.5%, respectively. The target price is upgraded to $11.50 from $10.50, with no change to the Buy rating.

Citi believes as the more proven and profitable routes are rolled out, the airline will be able to de-risk the investment case. This broker states a “cautiously optimistic” outlook, with earlier longer-haul routes lending support to Project Sunrise.

The stock is Buy rated with a $10.40 target price.

UBS is also Buy rated with a $11.15 target price, stressing consensus forecasts are positioned for around $300m-plus in Qantas International earnings (EBIT) from FY25-FY30, which infers consensus is willing to pencil in some $250m of the targeted $400m uplift in earnings from Project Sunrise.

Morgan Stanley is Overweight rated (Buy-equivalent) with a $10.60 target price and awaits more financial details around the cadence of aircraft retirements and the size/timing of entry-to-service costs for the new aircraft.

The FNArena consensus target is $10.93 supported by five Buy-equivalent ratings from daily monitored brokers. Macquarie has not updated on Project Sunrise.

Stock Analysis (see website) shows FY26 is expected to be less profitable for Qantas, as the impact from the Middle East war exerts itself, with FY27 only projected to deliver 6.4% EPS growth, according to current consensus projections.

Jarden is not daily monitored at FNArena and has a Buy rating and an $11.25 target.

Post Script

One of Qantas’ long-haul flights from London to Perth was recently forced to make an unexpected stop at Karratha Airport in remote WA.

The 787 Dreamliner reportedly needed to refuel to complete the final two hours of its journey on the normally non-stop route due to weather impacts.

As explained by media reports and analysts, the Perth-London route has reinforced consumer demand for long-haul direct flights and formed part of the decision to move forward with Project Sunrise.

This incident highlights the potential risks to long-haul non-stop journeys from weather-related impacts. Depending on conditions, route plans can vary considerably from day to day.

Project Sunrise flights to and from London could end up traversing the North Pole, as Japanese carriers do on their Tokyo-to-London routes.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms