By Rhiannon Hoyle
SYDNEY--While Australia's commodities boom was running hot, it
wasn't only mining companies that benefited from the billions of
dollars in investment pouring into the country. Airlines got a
boost, too.
That has changed as slumping commodity prices and reduced
investment prompt fewer builders and pit-workers to travel to
remote mine sites. The result: several operators of smaller
aircraft, such as lightweight jets and turboprops, are going bust,
while others are warning of a severe hit to profits.
The latest casualty in Australia's aviation sector is Skytrans
Pty. Ltd., a privately owned carrier from Cairns, in Queensland
state, which used to fly to more than 20 towns and cities,
including Moranbah, a coal-mining town, and Mount Isa, where
Glencore PLC produces copper and zinc from one of the world's
biggest underground operations.
The airline collapsed this week as seats on its planes became
increasingly harder to fill. Not long before that, Brindabella
Airlines Pty. Ltd., based in Canberra, and Vincent Aviation
Australia, in Darwin, were forced to hand over the controls to
insolvency specialists.
"A swing of 10% in passenger numbers will be all it takes to put
an airline out of business," said Irwin Tan, general manager of
corporate services for Regional Express Holdings Ltd., known as
Rex, the country's biggest regional-focused carrier. Rex's profit
declined 45% last fiscal year.
At the height of the mining boom in 2012, resources giants such
as BHP Billiton Ltd. and Rio Tinto Ltd. were flying in thousands of
workers to Outback towns for weeks at a time to dig up everything
from coal to iron ore.
Now, demand for labor has slackened as these companies respond
to sharp falls in commodity prices-- iron ore plunged nearly 50%
last year, for example--by conserving cash instead of building new
mines.
Smaller airlines have faced a number of other pressures that
have battered their balance sheets, including intense price
competition and, until recently, high oil prices affecting the cost
of jet fuel--factors that have also hurt larger domestic rivals
Qantas Airways Ltd. and Virgin Australia Holdings Ltd.
It has been a stark turnaround since the days when commodity
prices were soaring as demand from industrializing Asia for
steelmaking ingredients, such as iron ore and coking coal, was
expanding rapidly.
Unable to find enough locals in remote Outback towns to build
new mines, and urgently needed export infrastructure, mining
companies increasingly turned to fly-in-fly-out--or FIFO--workers
from all over Australia and as far away as Southeast Asia, who
typically were housed in makeshift accommodation on-site.
Skytrans had been restructuring to cope with the cooling
resources boom, which had already reduced passenger numbers on some
routes. The slide had made the carrier more reliant on a contract
with the Queensland state government's transport department--but
the company lost it to Rex after it expired at the end of
December.
"Unfortunately, with the contraction in multiple sectors of the
Australian economy and specifically in the resource sector, the
loss of [that] contract turned a snowball into a wrecking ball,"
Skytrans managing director, Simon Wild, said as the company
announced that all of its 188 staff had been laid off. A sharply
lower Australian dollar proved a further headache for Skytrans,
whose operating costs were mostly counted in U.S. dollars.
Brindabella Airlines, which had been flying since 1994 and
operated about 12 aircraft, ran into similar difficulties before
falling into receivership about a year ago. Last May, the
Australian division of New Zealand's Vincent Aviation Ltd. also
collapsed. When the parent company folded later that year, it cited
the impact from the failure of its Australian business, which once
flew mine workers across the vast northern Outback.
Rex said mine shutdowns and layoffs as commodity prices tumbled
had effectively put the brakes on a once-thriving sector. "It's had
a devastating impact on the operators heavily exposed to
fly-in-fly-out workers," said Mr. Tan.
Brisbane-based Alliance Aviation Services Ltd., which ferries
mine workers to places including Olympic Dam, in South Australia
state, where BHP runs a copper-and-uranium mine, is also
struggling. Last month, it lowered its annual profit guidance by
38% and said it would reduce its fleet of planes. Matthew Dyer, its
chief financial officer, said Alliance would hold off on paying a
half-year dividend, and that it also planned to write down the
value of its aircraft.
Australia's national flag carrier, Qantas, which also operates
some regional services, says it is insulated from the trend
somewhat by the scale and diversification of its business. Still,
the outlook could get worse when resources investment drops further
as multibillion-dollar liquefied natural gas, or LNG, terminals
that have been in the making for years are finally completed.
Building mines and export terminals requires substantially more
workers than the number needed to operate them.
"Regional airlines have really struggled with the subdued
economy, and the outlook isn't much better," said Ross MacMillan, a
Sydney-based analyst at Morningstar Inc. However, he added that
sinking oil prices, which tumbled by almost 50% last year, should
help ease matters this year for Australian airlines by lowering
jet-fuel costs.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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