For three years in a row now, Regional Express Holdings Ltd (ASX: REX) has been Australia's most profitable listed passenger airline.
Sometimes I wonder why Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH) shareholders don't just give up already.
When Regional Express' Deputy Chairman The Honourable John Sharp points out that REX has accumulated more profit before tax in the past nine years than either Qantas or Virgin, it's enough to make even the most stalwart investor reconsider their position.
Thus, despite profit falling by 44% in the 2013-14 financial year, Regional Express remains a bright point in Australian aviation and comments made during its recent AGM make me wonder if the company could be set to make up most of that lost ground in 2015.
After acquiring all five Queensland Government regulated routes that were applied for and spending $56 million expanding the airline's capacity, Regional Express should expect to again see rising revenue and passenger numbers.
Management also predicts a higher rate of return from the new assets compared to what the group has been achieving recently.
One of the major causes behind last year's 44% decrease in profit was the cost of aviation fuel, although a decrease in passenger numbers and the loss of $1 million in interest income (contributed 16% to the total profit drop) thanks to investment spending also played their part.
However with the price of aviation fuel remaining low and likely to fall further thanks to oversupplied oil markets, costs should remain under control for the year, while an increased number of destinations (up from 36 to 52) broadens the company's offering and should see passenger counts rise again.
Despite the positives, much of this appears to be priced in to the future of the company with Regional Express already trading on a future P/E of 13.6, broadly in line with the rest of the ASX.
Although this airline continues to be a standout performer in its industry, it's probably not the best investment for your hard earned cash, and Warren Buffett offers a humorous anecdote on the potential of the industry:
"…a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favour by shooting Orville down."
