Rex shares nosedive as profit take a battering, but signs of recovery being seen

Regional Australian airline, Regional Express Holdings Ltd (Rex), stated it is unable to forecast a full year result “in light of a highly volatile economic outlook, passenger demand, exchange rate and fuel prices", but stated it expects improved financial results in the current quarter (ended Dec-2009), with 2QFY2010 results expected to be “as good” as 21FY2009 levels, as the operating environment stabilises.

Shares in the regional airline nosedived, falling as much as 8.6% but closing 6.0% lower on 25-Nov-2009, after it reported a 23% net profit after tax reduction to AUD3.7 million (USD3.4 million) in 1QFY2010 (three months to Sep-2009). 

Double-digit revenue and passenger reductions in 1QFY2010; average fare slips 1.8% 

The reduction in profitability occurred as the carrier experienced a 14.6% reduction in passenger revenue to AUD47.5 million (USD44.2 million) and a 15.8% reduction in total revenue to AUD56.9 million (USD52.8 million), as passenger numbers slipped 13% (to slightly over 308,000), load factor slumped 5.9 ppts to 61.8% and average fares were down 1.8% to USD143.

Rex financial highlights: Three months ended 30-Sep-2009

Currency: EUR


% Change

Revenue (mill)



Profit after tax (loss) (mill)






Capacity (ASKs) (mill)



Load factor (%)


-5.9 ppts

Revenue per ASK (cents)



Cost per ASK (cents)



Subsequent to the reporting period, Rex reported a 6% reduction in passenger numbers to 115,000 in Oct-2009, for the lowest year-on-year passenger growth reduction since Oct-2008, when the carrier also reported a 6% passenger decline.

REX passenger number growth: Oct-2008 to Oct-2009

Load factors were, meanwhile, 4.9 ppt lower in Oct-2009, for 12 consecutive months of load factor reductions. 

REX passenger load factor growth: Oct-2008 to Oct-2009

In FY2009, Rex reported a 5.6% reduction in net profit after tax to AUD23.0 million (USD21 million) in FY2009, with a 3.7% reduction in revenue to AUD251.0 million (USD233 million) and a 12.8% passenger number reduction to 1.3 million. 

Pilot issues resolved; but economic uncertainty remains despite signs of recovery

Deputy Chairman, John Sharp, described the 2008/09 year as “annus horribili II” due to a 50% attrition rate, volatile fuel prices and the “uncertain economic climate”, but stated the carrier is seeing “signs of a recovery”.

The carrier is, however, seeing operational pilot numbers returning to “full establishment” levels, while a third intake of Rex pilot cadets have graduated, for a total graduate size of 45.

Unit cost improvements, but RASK down by a greater rate

In the quarter, Rex also benefited from a 45% reduction in fuel costs (to USD7.2 million and representing 14.8% of total costs, a 8.3 ppt reduction), while other costs and expenses were down 5.5% to USD41.2 million, resulting in total cost per ASK easing 7.9% to USD 22.76 cents. Revenue per ASK, however, fell at a greater rate, down 9.8% to USD23.97 cents.

Rex debt-free, with Pel Air having only a “small debt”

Rex is currently free of debt and has a strong balance sheet, while its corporate and freight business Pel Air has "a small debt which will be soon paid off".

Pel Air, meanwhile, was awarded and commenced a fly in/fly out charter contract for Illuka Resources in South Australia in the quarter, with further fly in/fly out contracts expected in the future.

Pel Air was also awarded the Commonwealth Air Transport Deed of Standing Offer tender earlier this month, enabling the carrier to join a panel of aviation companies authorised to provide air transport of personnel and equipment of the Australian Defence Force (ADF) both domestically and internationally for the next three years (from 02-Nov-2009). Transport of Commonwealth personnel not in the ADF can also be covered under this tender.

Rex, meanwhile, was ranked by Forbes Asia among the top 200 listed companies in Asia Pacific with revenue of less than USD1 billion, with the carrier being selected from 25,326 publicly listed companies  based on profitability, growth, moderate indebtedness and future prospects.

Forbes Asia List of Top 200 Listed Companies in Asia Pacific (extract)

Outlook: “Well poised for whatever lies ahead”

According to Mr Sharp, “Rex is well poised for whatever lies ahead having spent the last six years strengthening the business."

This, combined with signs of recovery in the airline sectors, a relatively debt-free operation, and a recent focus on efficiency improvements, makes the future a nicer place for Rex.

Background Information

Regional Express (Rex) is Australia’s largest independent regional airline operating a fleet of over 40 Saab 340 aircraft on approximately 1,300 weekly services to 29 destinations throughout New South Wales, Victoria, Tasmania, South Australia and Queensland. The Rex Group comprises Regional Express, airfreight and charter operator, Pel-Air Aviation, and Dubbo-based regional airline, Air Link, as well as the pilot academy Australian Airline Pilot Academy. Rex currently has a 3% domestic capacity share in the Australian market.

Australian domestic carrier capacity share: Nov-2009

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