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Friday, August 29, 2014

REX buck the Australian trend

Bucking the trend of fellow Australian operators and joining Air New Zealand in announcing a profit was Rex with a full year profit before tax of $10.7m($AUD) with a net profit of $7.725m ($AUD) this was down 44.9% on the FY13 net profit.

Despite posting a profit REX has warned that the Australian Aviation market is in deep crisis pointing to the losses made by Qantas and Virgin and listing the 16 different regional carriers who have collapsed and ceased operations since 9/11
Rex executive chairman Lim Kim Hai said the carbon tax, an increased fuel levy to fund the Civil Aviation Safety Authority and record fuel prices were all negative factors in 2013/14.
There were a few announcements of note in the release, FY14 saw REX take full ownership of its 51 frame SF340B+ fleet purchasing the remaining 18 frames that came off lease at the end of March 2014.

Its subsidiary Pel-Air has secured contract extensions for some of its SA based mining charter operations and has tendered for the dedicated search and reduce service for the Australian Maritime Safety Authority which will be announced later this year.  In FY14 the Pel-Air contract for fast jet support to the Australian Defence Force was also renewed by the Federal Government.  Pel-Air has also launched a number of SF340B+ flights in Queensland in support of resource sector FIFO operations.

Subsidiary Air Link began a Sydney - Cobar charter service in October 2013 and has also re-commenced RPT services this month, with a twice weekly SYD-DBO 1900D service.

REX is awaiting the outcome of its tenders to the Queensland Government to operate regulated regional Queensland routes which will be announced in October.  REX currently services the TSV-WIN-LRE* and TSV-HGD-RCM-JCK-ISA^ routes with a current contract end of 31 December 2014.  REX also launched a 3x daily SYD-ARM service on 28 March 2014 after an expression of interest period from local councils within a 600km radius of SYD, brought about by a network review and the recruitment of 11 former pilots of recently collapse competitor Brindabella Airlines.  

Read the media release, investor briefing and annual report as released to the ASX HERE


* Townsville - Winton - Longreach
^ Townsville - Hughenden - Richmond - Julia Creek - Mt Isa

VA joins in with red ink

Virgin Australia rounds out the Australasian Aviation finical reporting week with a statutory after tax loss of $355.6m ($AUD) however their underlying loss before tax was $211.7m ($AUD)

Virgin attributes this loss across the group as follows;
- Virgin Australia International (including VA NZ) loss of $66.8m
- Virgin Australia Domestic (including Skywest) loss of $59.2m
- Virgin Samoa (49% holding) loss of $2.6m 
- TigerAir (60% holding) loss of $46.1m
With restructuring and balance sheet costs, fuel, taxes etc also heavily contributing.

Virgin Australia has now completed its "Game Change Program Strategy" and has introduced Virgin Vision 2017 as its new focus.

Virgin Vision 2017
We can expect to see some change with this new vision which has wide scope throughout the entirety of the Virgin group.

The first change has seen Affinity Equity Partners buy a 35% stake in the Velocity Frequent Flyer program, giving the program an enterprise value of $960m ($AUD)  This will see the program remain under the control of Virgin Australia but with a separate board of directors.  Virgin Australia will maintain 65% voting rights and will appoint the chairman to the board. 

There will be some change in the fleet with the retirement of the two ex Emirates Airbus A330s an increased utilisation of the Boeing 737-800 fleet and the introduction of the new Boeing 737MAX fleet being brought forward from 2018 to 2017.

Virgin's charter operation, which have been built on the base afforded by the acquisition of Skywest has had a successful first year and Virgin are looking to grow it into a $200m ($AUD) operation by 2017.

Virgin will launch a new freight business in FY15 to leverage off their current RPT and Charter operations.

Virgin are looking to make $1b ($AUD) in cumulative productivity gains, this will be achieved through 3 steps;
1. Enhancing procurement
2. Improved productivity (including the above mentioned fleet changes and utilisation)
3. Streamlining of operations (see below)

As part of the streamlining of operations Virgin will reduce its long-haul international bases to two (SYD & BNE - with the already announced end of MEL-LAX flights)  it will  also  integrate Virgin Australia (NZ) operations back into its international division.

Virgin have announced they will also introduce business class onto all flights across the Tasman and to Fiji, which will be seen through the standardisation of the on board offering through the integration of VA(NZ) back into VA.  Currently VA(NZ) aircraft which operate on these routes do not have  business class seating.  

The biggest list of change/improvement is with the TigerAir LCC brand. 
1. Further improve customer satisfaction - something that has plagued TigerAir
2. Drive incremental revenue growth - through new revenue management and initiatives
3. Deliver cost synergies - via network, operational and finical synergies as well as a new Brisbane base and cooperation with VA on procurement of fuel
4. Development of an efficient operating platform and network footprint - new enhancements to drive operational efficiency including the new Brisbane base, new maintenance provider in BAE Systems and reaching agreement with Sydney Airport about infrastructure constraints at SYD

Read the full whack of documents supplied to the ASX including final report, press release, presentation and Velocity announcement HERE

Thursday, August 28, 2014

JQ also have a loss

As mentioned in the Qantas Group loss post, Jetstar also had a full year loss of $116m ($AUD) down from a profit of $138m in FY13

Jetstar's domestic Australian operations were profitable as they have been every year since the launch in 2004.

The losses are attributed to unfavourable fuel costs of $86m, a $113m yield decline across the JQ group and $70m in costs for the rapid acceleration of the Jetstar Japan operation, as well as another $20m in costs for other Jetstar operations in Asia.

- Jetstar Asia is the leading LCC in Singapore
- Jetstar Japan is the fastest growing LCC in Japan
- Jetstar Pacific in Vietnam is growing and will increase its fleet from 7 to 10 by December 2014
- Jetstar Hong Kong is still stuck on the ground awaiting regulatory approval

Fleet
As mentioned in the Qantas post there have been some fleet changes with Jetstar

- JQi has received 4x B787-8 enabling it to return 3x A332 to Qantas
- JQd(AU) has sold 5x A320 on order based on the subdued outlook for domestic growth
- 21x A320 currently on order have been deferred for 4 years and converted into an order for 21x A320neo taking the total A320neo order to 99 frames
- The final 3 B787-8 of the original 14 frame have been deferred (previously announced)

The Jetstar result is buried in the middle of the Qantas group announcement and can be found in the Qantas Group FY14 Financial Results Media Release document HERE

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