FIFO pricing could come under pressure
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PERTH, Sept 10 AAP
September 10 2013, 5:11PM
Australia's biggest airlines face pricing pressure as they battle for fly-in, fly-out (FIFO) contracts in the wake of a recent downturn in the mining sector.
Analysts say dominant FIFO players Qantas and Virgin Australia are likely to feel pricing pressure as mining companies cut expenditure and focus on the production phase.
The FIFO aviation industry, which services around 100,000 resources workers, has undergone a period of consolidation in recent years, with Qantas and Virgin buying up smaller airlines.
Qantas has secured around a third of the FIFO market after recently inking contracts with Fortescue Metals Group and Gina Rinehart's Roy Hill iron ore project in the Pilbara region of Western Australia.
Two and a half years ago the flying Kangaroo snapped up Perth-based charter operator Network Aviation for $30 million.
It was followed by rival Virgin Australia last year buying regional carrier SkyWest to fast-track its FIFO expansion.
Kimber Capital Portfolio manager Kim Slater said the number of FIFO workers was likely to fall as the mining sector moved from the capital expenditure phase to the production phase.
"Like all the mining services companies Qantas and Virgin are under pressure in terms of pricing," Mr Slater said.
"That's flowing through to the aviation sector and into the number of people that are being moved on a fly-in, fly-out basis.
Still, he said Qantas had significantly boosted its market share in recent deals, just as many mining companies reduced their spending.
Some other analysts say the mining downturn will mean passenger movements will become more regular, with fewer workers travelling more often.
Qantas chief executive Alan Joyce recently said the resources market remained a priority for the airline.
"We have a clear network advantage in the key resource states of Western Australia and Queensland," Mr Joyce said at the company's results on August 29.
Meanwhile, Brisbane-based FIFO operator Alliance Airlines believes it's on a steady footing after increasing its 2013 full year profit by 19 per cent to $23.3 million.
Alliance plans to add two planes to its fleet of 29 aircraft in the 2014 financial year.
"Whilst market conditions have resulted in a minor contraction of flying on existing contracted routes, Alliance has maintained an increasing diversification of revenue sources," chief executive Scott McMillan said in a statement.
Alliance has contracts in Queensland and the Northern Territory with BHP Billiton, Santos, Xstrata and Newmont.
By Kim Christian