Shares in ASX-listed airliner Regional Express Holdings Ltd (ASX: REX) have tripled since March.
Despite the COVID-19 pandemic wreaking havoc on the airline industry, shares in Australia's largest regional airliner are soaring.
Here's why the Regional Express share price has been flying and why it could be a long-term buy.
How has Regional Express performed?
Late last month, Regional Express released its annual report for FY20.
Despite receiving $53.9 million from the Federal Government, Regional Express recorded a statutory loss after tax of $19.4 million. The loss is a huge turnaround for the company, after recording a profit of $17.5 million the previous financial year.
Regional Express has been able to ride out the pandemic with total revenue of $321 million. Government subsidies were the company's second largest source of revenue. In the 12 months to June 20, Regional Express noted it had received $63 million in government subsidies and grants.
Turnover for the full year also remained flat at $321.8 million. However, Regional Express assured investors that the airliner remained profitable on an underlying basis. The airline's passenger revenue fell $65 million in the last quarter of FY20. Despite this Regional Express was able to post a small underlying profit before tax of $250,000.
What's fuelling the Regional Express share price?
The Regional Express share price has been flying on the back of expansion to its domestic operations.
Earlier this year, the airliner announced it would be expanding its domestic operations into the 'Golden Triangle'. In local aviation terms, the 'Golden Triangle' refers to the lucrative domestic routes between Sydney, Melbourne and Brisbane.
As a result, Regional Express is looking to raise $30 million to support the initiative by purchasing a set of narrow-body jets to be based in major cities on the east coast.
Should you invest in Regional Express?
Regional Express currently dominates regional services, covering 85% of the routes on offer.
The company is headed by a strong board and management. If Regional Express can build on existing infrastructure and maintain a low-cost base, they should maintain profitability.
However, expansion of its operations could come with additional risks.
Firstly, it's important to note that the aviation industry remains highlight volatile given the COVID-19 pandemic. Until there is a full recovery, the sector will see more money going into capital than profits coming out.
Therefore, there is no need to jump the gun and invest at the current Regional Express share price, which is trading at the time of writing at $1.02. In my opinion, investors have plenty of time to assess conditions before making an investment decision.
