Regional carriers reap the benefits of strong economy

Australia’s regional airlines have seen impressive growth in share prices over the last few months, with growth exceeding 30%. In the last 2 months alone, Regional Express (Rex) increased from AUD1.05 to AUD1.38, the highest result the carrier has achieved since Feb-2008. Alliance Airlines has followed a similar trend, climbing to its highest point since Dec-2014.

Rex and Alliance Airlines share price and volume: Oct-2015 to Sep-2017

Source: ASX

Regional Express

Strong FY17 results are pushing the Rex price upwards as demand for the carrier also increases. Rex reported it nearly quadrupled operating profit in FY2017, achieving an AUD17.8 million profit before tax, compared to AUD4.3 million in FY2016. The carrier also forecasted double digit profit growth for FY2018.

Group executive chairman Lim Kim Hai recently stated that “as long as the Australian economy continues this modest recovery, I have confidence that Rex will continue to perform well”.

Traffic has bounced back from a slump in 2015, growing by 10% each year since then and on track to exceed that in 2017.

Regional Express annual traffic passenger numbers from 2008 to 2017

Source: CAPA – Centre for Aviation and Regional Express (Rex) reports

Alliance Airlines

Alliance Airlines reported a Net profit in FY2017 up AUD18.5 million year-on-year equating to a 37.5% increase. Alliance Aviation MD Scott McMillan believes the current results were pleasing and positions the business well for the future. while CEO Leo Schofield said: “The profitability of the business has provided good cash flow from operations. These funds have been used to continue to invest in the expansion of the business. During this time, the carrier has also continued with the debt reduction strategy”.

As part of its outlook for FY2018, Alliance highlighted improvements in the resource sector and the carrier’s strategic partnerships will provide greater opportunities. Wet lease flying is forecast to continue to grow compared with FY2017, further sale of aircraft and parts from inventory will be conducted and three further aircraft will be introduced into service in H1FY2018, all assisting in driving up profits and therefore share price.