Alliance Aviation Services Ltd (ASX: AQZ) reported a 24.1% jump in profit before tax after the close of trading on Wednesday. The company’s diverse business model enabled it to pivot in mid-stride during the coronavirus pandemic quicker than any other airline. Consequently, it was able to continue flying throughout the pandemic.
The company’s FY20 top line revenue was $298.6 million, versus $277.1 million in FY19. In addition, flying hours were only 1% lower. As a brief financial summary, the company flew basically the same hours for an additional 7% of revenue, and saw profit before tax increase by 24.1%. This underlines very disciplined cost management throughout the period in addition to higher paying flights.
The company also ended the year with 4 additional aircraft, and reduced debt by $6 million.
Alliance Airlines high points
Contract sales made up 68% of company revenue. Specifically, they contributed $202.5 million for the year, which is an increase of 22.5% compared to FY19. This was the result of two factors. First, the continuation of resource sector companies as part of the nation’s essential services. Second, the social distancing requirements. This resulted in more flights required for existing customers to traffic workers to and from remote sites safely.
Wet leases were down by 46.3%. This is when the company’s planes fly under another company’s brand. This is due to the suspension of the group’s wet lease agreement with Virgin Australia Holdings Limited (ASX: VAH) in March 2020.
Another standout performer for Alliance Airlines was chartered flights. This increased by 97% over the year. The group performed charter services for a number of new resource sector clients, sporting teams and various emergency services from the lockdown period to the end of the financial year.
Its stoic performance throughout the coronavirus pandemic has resulted in additional work. For example, the company was awarded flights to the Whitsundays by the Queensland Government. In addition, it announced a new 10-year airline services contract with South32 Ltd (ASX: S32) for the Cannington and Groote Eylandt (GEMCO) mine sites on 1 May.
Alliance Airlines carried out a placement to institutional investors for an amount of $91.9 million. In addition, it raised a further $3.9 million via a share purchase plan for retail investors. These funds are to increase the fleet size to take advantage of opportunities in the market.
On the 3 August 2020, the group announced it had entered an agreement with Azorra Aviation of the United States. Specifically, this was for the purchase of 14 Embraer E190 aircraft. Moreover, the package included related inventory, ground support equipment, tooling and training devices.
The company has a number of new routes already planned in regular public transport (RPT) for these aircraft. Furthermore, it expects several of its charter flights to mature into long term charter contracts. Lastly, most requirements for social distancing has now ceased, however contracted schedules continue to be higher than pre-COVID-19 levels.
Nevertheless, the airline is not without competitors. Today’s announcement by Virgin Australia that it was going to kill off its Tigerair brand reduces low cost flight competition. However, it still finds itself competing head first with the Qantas Airways Limited (ASX: QAN) regional carrier Qantaslink, as well as Regional Express Holdings Ltd (ASX: REX).
The performance of Alliance Airlines during the pandemic has vindicated the company’s diverse business model. Moreover, based on its performance, it has won extra contracts. I believe the company’s financial results are sustainable, and will continue to improve into the future. This is due to the planned expansion building on existing successes, thereby reducing the risk of failure.
As a result of its planned expansion, there will be no final dividend for FY20. The company is currently trading at a price-to-earnings (P/E) ratio of 19.4 and has a market valuation of $571.59 million.
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