Overall disappointing results as the full year underlying profit...

Overall disappointing results as the full year underlying profit of $3 million meant that the second half of FY16 actually produced a loss of $300k given the HY16 profit was $3.3 million.

There are some good tailwinds for the year ahead which include the new routes in WA is expected to contribute circa 9% more passengers but proportionate more in revenue given higher average fares. Also fuel hedging is expected to save at least $4.7 million in FY17. However, these tailwinds are unlikely to see Rex's net profit return to pre-2010 levels (above $20 million).

Fundamentally, the problem is a lack of passengers compounded with ever increasing cost. Although passenger numbers is driven by the regional economy, I believe management's response to increasing cost by increasing fares is driving passengers away. There has been nearly a 50% decline in passengers from 2008 - 2016!



Based on the current trajectory, I don't foresee the company making an adequate return on its capital. I think the solution is to shrink the operations, optimise the network and cull routes that don't earn an adequate return of capital.

Comments?

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