Aviation Sector Talk- AQZ, QAN, AIA

Air access has been one of the key concerns under the Australian tourism industry’s long-term strategy of achieving annual tourism expenditure of as high as $ 140 billion by end of decade in line with the Tourism 2020 strategy. The Australian aviation industry now has increasing number of large and small airlines operating within the country and all over the world.

To enhance the economic benefits of tourism to the country, Government Agency Tourism Australia continuously collaborates with Australian airports, airlines, and State and Tourism organisations (STOs) to market current and new routes, supporting in demand expansion and enhancing sustainable aviation capacity to Australia.

Within the Australian aviation industry, certain low-cost carriers are doing well with Qantas low-cost offshoot Jetstar at the forefront of this category. The advent of low-cost carriers chipped away at the dominance of full-service airlines and made air travel accessible to millions of people posing greater competition for the industry.

Let’s look at the following three aviation sector stocks, listed on ASX under the industrials category:

Alliance Aviation Services Limited (ASX:AQZ)

Australia-based Alliance Aviation is engaged in the provision of contract, charter and allied aviation services, backed by a staff of over 590 in Australia and Europe with operational bases in Melbourne, Adelaide, Perth, Brisbane, Townsville, Cairns, Rockhampton and Darwin. The company’s operational performance is renowned globally, a key characteristic sought by its customers.

FY19 Highlights: Alliance Aviation announced its results for the financial year ended 30 June 2019, posting:

Source: Financial Results Presentation FY19

· Profit before tax of $ 32.8 million, up 25.7% (Profit after tax - $ 22.7 million up 25.5%);

· Operating cash flow of $ 37 million;

· Total revenue from operations of $ 277.1 million, up 11.9%;

· Total flying hours of 38,026, up 9.9%;

· Debt of $ 60 million, a reduction of $ 5.2 million in the financial year;

· A record fully franked final dividend of 8.8 cents paid in November 2019;

Alliance continues to deliver safe, on time and cost-effective air services to its broad client base, whilst supporting other operators and clients through the Company’s aviation services operation. Going forth, the company also affirmed its positive outlook for growth in the 2020 financial year.

Stock Performance: Alliance Aviation has a market capitalization of $ 323.77 million with ~ 127.47 million shares outstanding. On 27 December 2019, the AQZ stock settled the day’s trading at $ 2.550, with ~ 16,164 shares traded. AQZ has generated a positive return of 6.72% in the last three months.

Qantas Airways Limited (ASX: QAN)

Qantas Airways Limited provides passenger transportation services through two airlines including Qantas (full-service carrier) and Jetstar (low cost carrier), operating international, domestic and regional services. The company also operates Qantas Frequent Flyer and Qantas Freight.

Recently on 20 December 2019, Qantas Airways announced resignation of Debra Joan Smith as a Company Secretary of Qantas Airways Limited, effective the same day.

First Quarter FY20 Update: During the concerned period, the Qantas Group continued to deliver revenue growth that witnessed an increase of 1.8 per cent to a record $ 4.56 billion compared with $ 4.49 billion in the prior corresponding period. The Group Unit Revenue increased 2.1 % versus the prior corresponding period.

· The Group Domestic Unit Revenue decreased 0.9 % amidst mixed market conditions. The traffic from Resources industry remains on a rise and during the quarter, this helped in balancing weaker demand in other parts of the corporate sector, the demand from which was flat overall.

· The revenue from Group International Unit increased 4.4 %, owing to a reduction in competitor capacity along with benefits realised from Qantas International’s network and fleet changes.

· The revenue from Jetstar International also improved over the three months, on account of strong demand on leisure routes to Asia that balanced weakness in markets affected by US Dollar strengthening.

· Besides, freight demand was quite affected by escalation in global trade tensions.

· A fully franked dividend of 13 cent was paid to shareholders on 23 September 2019, representing a $ 204 million return.

Stock Performance: Qantas Airways has a market capitalisation of around AUD 10.93 billion with ~ 1.49 billion shares outstanding. On 27 December 2019, the QAN stock settled the day’s trade at AUD 7.340, up 0.136% by AUD 0.010. Besides, QAN has delivered positive returns of 27.26% Year-to-date and 37.01 % in the last six months.

Auckland International Airport Limited (ASX: AIA)

Auckland International Airport Limited owns and operates the Auckland International Airport which encompasses a single runway, an international terminal and two domestic terminals. The Airport also has commercial facilities which includes airfreight operations, car rental services, commercial banking centre and office buildings.

October 2019 Traffic Update: The total passenger volumes at Auckland Airport experienced a decline of 1.1% in October 2019 (increased by 0.8% in September 2019) as compared to prior year. International passengers (excl. Transits) were down 0.7% (up 1.0% in the last month), while transit passengers were up 3.9% (up 12% last month) and domestic passengers were down by 1.9% (down 0.7% last month).

Some of the highlights from the month include-

· Around 77.4% growth was recorded in Taiwanese visitor arrivals for the month of October 2019 compared to the last year, which continues to be a highlight as the new direct service between Auckland and Taipei by Air New Zealand entered its 2^nd year.

· Queenstown Airport reported continued strong international passenger growth which stood at 18.7% in for the month relative to prior year. This was achieved due to a consistent increase in international services primarily due to Air New Zealand and Virgin Australia operating separate services after their code share agreement ended.

In September 2019, Air New Zealand had announced commencement of new non-stop flights between Auckland and Dallas-Fort Worth from October 2020. Besides, plans are also there to increase the frequency of flights between Auckland and Los Angeles from daily to twice daily in the summer peak season October 2020 to March 2021.

Stock Performance: Auckland International Airport’s market capitalisation stands at around AUD 10.57 billion with ~ 1.22 billion shares outstanding. On 27 December 2019, the AIA stock settled the day’s trading at AUD 8.60, down 1.149% with ~ 77,256 shares traded. AIA has generated positive returns of 27.01 % year-to-date, 1.28% in the last three months and 0.93% in the last 1 month.

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