With major cities out of lockdown and international travel resumption, most people would have started planning their end-of-year trip to find the best deals to their dream destination from months away. This is brilliant momentum for airlines to rise from the grave after being one of the most harshly impacted businesses during the strict lockdowns. After being stuck at home for two years, passengers are seeking “revenge” to travel, therefore the demand for air travel will continue to soar the sooner we’re transitioning into pre-COVID leisure habits.
As airlines remain instrumental in forming today’s economy, the competitiveness between national carriers is inevitable. If you’re keen to invest in airline stocks, let us save you from all the confusion as we have covered two of Australia’s most beloved airlines that you should consider before the share prices went up to the sky. Household name Qantas is no stranger to airline investors, but up-and-coming REX might also be a great addition!
So get ready investors, pack your bags and let’s begin!
Regional Express – Rex Airlines (ASX: REX)
First up is REX, Australia’s largest regional airline outside of the Qantas Group. Founded in 2002, the Rex Group also comprises wholly owned subsidiaries Pel-Air Aviation (air freight, aeromedical and charter operator). REX prides itself as the reigning champion of BITRE Aviation Statistic’s Airline Reliability Index since FY20, with a rating of 85.4% in FY22.
Just like most airlines, REX has suffered service disruptions throughout the pandemic, mostly due to sudden cancellations due to COVID, travel restrictions, a steep decline in passenger numbers, and persistent lockdowns in its major service areas that resulted in limited flight frequency. REX incurred a $46.5 million loss in FY22, a huge jump from a $3.9m loss in the previous financial year.
However, don’t be spooked by these figures. REX has made several expansion agreements and increased service operations in FY22, which could be attributed to the loss. On 15 July 2022, Rex announced that it had signed a Sale and Purchase Agreement worth $48m to purchase National Jet Express Pty Ltd (NJE) which is also referred to as Cobham Regional Services, that will expand Rex’s service to be the largest fly-in fly-out (FIFO) chartered jet provider in Australia, servicing major mining, oil and gas companies. In June 2022, Rex announced commencement of services to Devonport from Melbourne in August 2022 which will end Qantas’ 17-year monopoly of the route, as well as signing multiple partnership agreements with major travel agency groups including Flight Centre, Helloworld, and Webjet.
Other than the fact that Rex has made strategic moves to prepare itself to compete neck-to-neck against national carrier Qantas once travel is back to normal, it is worth noting too that Rex’s pre-pandemic share prices had been relatively stable at $1.35-$1.40 in 2019 before hitting rock bottom in the beginning of the pandemic in March 2020 with $0.50 per share. It made a comeback when air travel gradually reopens at the end of 2020, hitting its highest point of $2.04 per share in December 2020. It currently sits at $1.32 per share (as of October 2022). Rex is confident that they are currently on the path to profitability and are able to push the share price up as business has slowly returned to normal from February 2022 onwards. In Q4 of FY2022 the Group’s regional operations were at 90% of pre-COVID levels. The Group saw demand for regional and domestic destinations continue to improve into Q1of FY2023.
Qantas (ASX: QAN)
Others can boast all they want, but no one flies across continents like Qantas. As Australia’s pride and joy when it comes to international travel, Qantas is definitely one of the names that comes to mind when thinking about international travels. Qantas, taking pride of its ‘National Carrier” title, flies 60 domestic routes as well as 30 international routes alongside its low cost subsidiary Jetstar.
Despite being able to assist with repatriation flights, Qantas’ operations throughout the pandemic was far from normal capacity. In FY22, Qantas suffered approximately a $1.2 billion loss before tax mainly due to border closures and lockdown, and the Qantas Group operated at only 33% capacity for the financial year. However, this is an improvement as they incurred a loss of $2.3b in FY21 and $2.7b in FY20. On the slightly positive side, the group reported net debt of $3.94b, which is below the target range of $4.2b to $5.2b.
As a pathway to recovery, despite all the operational disruptions that cost them $386m negative cash flow in FY21, Qantas proudly announced that it has successfully recouped positive cash flow of $2.6b in FY22. As the restart of domestic and international operations went well so far, Qantas reached 63% passenger capacity of pre-COVID levels in 4Q22, and domestic capacity astronomically increased from 33% to 100% of pre-COVID levels in six months. Meanwhile, international travel is predicted to soon return to pre-COVID standards, especially during end-of-year long holiday periods. Also, all key international markets are now fully reopened without restrictions, with the exception of China.
Some other important initiatives that Qantas delivered during FY22 to boost its profit and market share includes enhancing added value for Qantas products to attract customers to fly with Qantas, for example by renewing agreements with Woolworths and all five major financial services partners. Qantas is now offering Buy Now Pay Later (BNPL) payment method with Zip. Qantas also formed new strategic partnerships with Accor and Optus, and launched Qantas Business Money that can be used as an international multi-currency travel card. Aside from being able to send and receive money in foreign currencies, this initiative also offers conversion to Qantas Points, which will hopefully encourage customers to choose Qantas while travelling, and keep them within the Qantas ecosystem.
It is important to note that Qantas did not incur any losses in FY19 and FY18 (pre-pandemic), so if Qantas can play their cards right and perfectly execute their path to recovery, it is not impossible that they will find its way back to profitability in FY23 following the increase of air travel demand, making it to be among the first Australian carriers to fully recover.
Clara is a Business Reporter for The Sentiment.
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