Australia’s Alliance Airlines has defied the odds, boasting a half-year profit of $26.7 million (before tax), thanks to a unique business model and an approach to real estate that sets it apart from other national carriers.
Despite operating in an industry that has been rocked by COVID-19 travel bans, this quiet achiever in the world of aviation has recently purchased 30 Embraer 190 (E190) aircraft, at a cost of just over $US4.5 million each.
While most airlines lease their aircraft, CEO Lee Schofield said his company preferred to buy. And the same rule applies to real estate acquisitions.
“The norm across the board for both property and aircraft is that leasing is the way to go, and that’s really a key differentiator for us – we like to own everything,” Mr Schofield said.
“We’re a bit old-fashioned, bricks and mortar … we buy and own all our aircraft and have a strong preference – with property and vehicles – to buy too.”
With most of the airline’s real estate activity located at airports situated on Commonwealth-owned sites around the country, purchasing land is usually not possible. However, Alliance does own its hangars and office facilities, with its head office overlooking the Brisbane hangar.
“Probably the most glamourous and the most important of our real estate holdings are our hangars,” Mr Schofield said. “At our head office at Brisbane Airport, we’ve owned the building and leased the land for about 19 years, and just before Christmas, we purchased our next-door neighbour’s hangar and business, Toll Engineering.”
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Mr Schofield said the Toll facility and engineering business came with 41 additional staff and many of the operating approvals needed for the new aircraft.
“We’re growing out of our current house, and so we needed to extend next door,” he said.
“When your neighbour is up for sale, you always buy them, which I think translates across all real property.”
Alliance also owns facilities in Townsville, Cairns, Darwin, Perth, Adelaide and Melbourne airports, and it operates and manages Cape Preston Airport in the Pilbara, Western Australia, on behalf of a mining customer. Mr Schofield said its next real estate venture is to build a new hangar and engineering facility at Rockhampton airport.
Yet, how can a relatively unknown airline afford to expand in both real estate and aircraft during a global pandemic?
Founded in Brisbane in 2001 by four entrepreneurs and publicly listed in 2011, Alliance is unusual in that as well as regular passenger flights, it services the resource sector (FIFO), offers group charter flights, trades in aircraft and spare parts, and provides wet-leasing (code-sharing) for airlines such as Virgin and Qantas.
It’s an approach that aviation expert and Strategic Aviation Solutions chairman Neil Hansford describes as “ballsy” and “well-managed”.
“They really are the airline’s airline,” Mr Hansford said.
“Other than the mining contracts, they provide services to other airlines who are doing the billing … so they are not taking a commercial risk.
“It’s not a company you hear anything sensational about; they just get in there and keep on making money.”
Schofield said that while Alliance flies aircraft around, “we don’t consider ourselves to be an airline”.
“We are a diverse company, and we like the different revenue streams; we’re not afraid to take on a bit of risk in a different business area that aligns well with our core business,” he said.
“We’re very proud of what we do, but we prefer to do it under the radar.”
Mr Hansford also points to the collective depth of aviation and business experience that the founders and board members of Alliance bring, allowing them to negotiate the industry’s changing conditions better than most airlines worldwide.
“If you have a look at their board, they are more of the grey hair or no hair variety than pimply-faced kids,” Mr Hansford said. “It’s a very well-structured board of people with experience.”
“We do like to be a bit boring in terms of financial resources,” Mr Schofield said. “But no matter how well we’re doing, we’re always thinking about where we are headed next.”
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