Morgan Stanley backs Qantas for 21% upside on Project Sunrise

Morgan Stanley thinks the market is undervaluing Qantas (QAN), and it reckons Project Sunrise is the latest catalyst that'll drive renewed upside to the share price.

The analyst says the payoff from the two new ultra-long-haul routes goes well beyond the extra earnings they generate, which should leave Qantas as a structurally better airline that warrants a higher valuation multiple.

The investment bank lifted its 12-month price target on the airline to $12.50 from $10.60, and retained an Overweight rating.

More than $400 million of earnings

Project Sunrise will let Qantas fly non-stop from Australia's east coast to London and New York from October 2027, using purpose-built Airbus A350-1000ULR aircraft. Management has targeted approximately $400 million of extra earnings once the routes reach scale.

Morgan Stanley says the $400 million figure understates the opportunity as premium seats make up 41% of the new aircraft against 10-20% across the rest of the international fleet, which should lift the quality of Qantas' earnings rather than just the face value amount.

Higher premium exposure and a more flexible fleet should make international earnings less volatile, and the analysts argue a steadier, higher-return business deserves a higher multiple.

Bullish forecasts

Morgan Stanley left its FY26 numbers largely intact but lifted FY27 earnings per share by 5% to $1.01, mostly on lower fuel prices. Further out, the analysts raised international EBIT forecasts by 3-31% across FY28 to FY30, and introduced an FY31 international EBIT forecast of $1.23 billion. This represents a 105% increase compared to FY25's $596 million EBIT and 26% above consensus expectations, so Morgan Stanley is very bullish relative to the rest of the crowd.

The confidence comes partly from a route Qantas already flies. Since 2018, Perth-London has run a 20%-plus revenue premium over one-stop rivals at load factors near 90%, and it holds the highest customer satisfaction score on the international network. Sydney's premium market is approximately three times the size of Perth's, so Project Sunrise needs only a modest shift in behaviour to hit management's demand assumptions.

Qantas trades on about 11x forward earnings, which represents a 30% discount to the global airline average of 16x and a 20% discount to the peer median of 14x. This is despite Qantas generating a return on invested capital of 20%, one of the highest in global aviation.

Risks to the outlook

Morgan Stanley also set out where it could be wrong.

• Premium demand could prove weaker than expected if travellers will not pay up for non-stop cabins.

• Competitors could deploy rival ultra-long-haul aircraft sooner than assumed, eroding the first-mover lead.

• Aircraft delivery delays or a slower ramp-up could delay both the earnings and the re-rating.

• The fleet program pushes free cash flow into the red in the near term, with gearing set to peak near 1.5x net debt to EBITDA in FY27 and FY28 before the spend eases.

The market won't have to wait long for the next progress update. Qantas' FY26 result is due on 27 August and should provide further detail on Project Sunrise and the broader fleet renewal. Initial ticket sales are penciled in for February 2027 and the first aircraft due in April 2027.

Morgan Stanley's point is that each of those steps chips away at execution risk, which should, in theory, narrow the stock's discount to peers.