Aviation industry in rude health

The sector has never been in better economic shape with even US billionaire Warren Buffett now investing in airline shares.

The aviation industry has never been in better economic shape with even US billionaire Warren Buffett now investing in airline shares.

The annual Centre for Aviation conference in Sydney heard a “new benchmark” had been created by the likes of Qantas, which remained on track for a record full-year profit of between $1.55 billion and $1.6bn.

Agri-nomics Australia director Barry Parsons said it was not that long ago airlines had been considered poor investments.

“Now you’ve got Warren Buffett investing in shares and the main local airline here has a return on invested capital of about 21 per cent,” Mr Parsons said.

“It’s a great business, a great investment and that’s going to be hard to maintain.”

He said in aviation, there was always a “crisis around the corner” but for the moment it had never been better.

“Numbers-wise, net profit reporting levels are up quarter on quarter, operator cash flows are up on prior years and fares are climbing,” Mr Parsons said.

“Fuel’s up 55 per cent year on year, but most of that’s being passed on to the premium cabin.”

International Air Transport Association data for May-June 2018 also showed passenger demand trending upwards and freight volumes increasing.

Regional Express deputy chairman John Sharp said the biggest threat to the industry’s growth and profitability was US President Donald Trump.

“The one thing in a global sense that threatens it all is Mr Trump and trade wars, and that has the potential to impact all of us,” Mr Sharp said. “We as a regional airline will not be safe from that, we will be affected.”

He also nominated the pilot shortage, airport fees and the cost of complying with Civil Aviation Safety Authority regulations as major challenges for the industry.

“When I first joined Rex in 2004, we had one captain who managed all of our compliance work,” Mr Sharp said.

“That one part-time person is now 14 people. It’s those additional costs that compliance imposes on you in a regional market that makes our viability more difficult. It’s almost impossible for anyone to start up against us.”

Ian Douglas from the International Air Services Commission, which allocates capacity entitlements to Australian airlines for the operation of international services, said there was evidence that regulation was actually working to airlines’ advantage.

“Constraints on capacity growth in some environments is actually providing some external limits on the speed of growth and that’s helping to boost yields,” Mr Douglas said.

“There is a sense the market is comfortably doing well.”