Are there any safe havens in ASX aviation shares?

Aviation shares are by far the hardest hit on the ASX. While the major players are all facing difficulties, there is one safe haven share.

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One of the hardest-hit sectors on the ASX amid COVID-19 is aviation shares. Australia is carefully opening up the economy. However, the rest of the world is still in crisis. 

Bleak outlook for ASX aviation shares

One high profile company to be impacted is Qantas Airways Limited (ASX: QAN). Qantas has seen a dispute with Perth Airport erupt at the same time its flights have dropped to near zero. This has resulted in Qantas receiving termination notices. Even without this conflict, the airline faces near-term uncertainty. Nevertheless, if the terminations are carried out, the entire airline industry could alter. 

Sydney Airport Holdings Pty Ltd (ASX: SYD) is another high-profile casualty. This airport has seen domestic passengers reduce by 97.4%, while international passengers dropped by 96.1% in the first 16 days of April. Domestic flights and trans-Tasman flights to New Zealand appear possible in the near term. This will provide some income for Sydney Airport. However, it is still a long way from its performance in January.

Air New Zealand Limited (ASX: AIZ) has seen its share price fall by 59% year-to-date. Air New Zealand is a far smaller company than Qantas and Sydney Airport by market capitalisation. As such, it requires less volume to regain momentum. However, the limited flights across the Tasman sea or domestically within New Zealand are still a long way from its usual international traffic. 

The safe haven

Alliance Aviation Services Ltd (ASX: AQZ) is a small-cap ASX aviation share. It operates a number of “wet lease” services for Virgin Australia Holdings Limited (ASX: VAH) which has impacted its revenues. However, the core of its work comes from fly-in fly-out operations for the nation’s resources sectors. All of these flights are continuing.

Mining and oil and gas companies are the hardened core of our economy. They are responsible for our recent trade surplus and are essential to our short-term survival. Throughout Australia, these companies have made significant changes to adapt to COVID-19. Social distancing within aircraft means reduced passengers per flight and is likely to see an increase in overall flights.

On 1 May, Alliance announced a new 10-year airline services contract with South32 Ltd (ASX: S32) for the Cannington and Groote Eylandt (GEMCO) mine sites, further cementing its reputation as a provider of choice for fly-in fly-out operations. In fact, Alliance does not even operate from Sydney airport, preferring to service regional centres and smaller airports. 

I believe that no matter what happens from this point forward, there is little chance Alliance will see any reduction in its fly-in fly-out operations.

Foolish takeaway

While there is a reduction in wet lease flights on behalf of Virgin Airlines, Alliance has been able to maintain its momentum through its focus on fly-in fly-out operations. In fact, it is likely to see flights increase to cater for social distancing in distance commuting. As intra-state travel begins to open up, I believe Alliance will see its revenues come back before the large players in the field.

If the feud between Perth Airport and Qantas escalates further, it may gain further market share.

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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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