Analysis for The Americas

Qantas and American Airlines joint venture - what a difference 6% makes

14 December, 2016

As Qantas now looks to expand its own services westbound towards Europe - with the recent announcement of Perth to London direct 787-9 Dreamliner services scheduled to commence in early 2018 - looking east Christmas was almost ruined following the blow dealt to Australian’s largest carrier as a result of the US Department of Transport’s (DoT) rejection of a proposed joint venture with American Airlines (AA) across the Pacific. This, despite Australia’s Competition and Consumer Commission and New Zealand’s Ministry of Transport approving the proposed venture earlier this year.

Summer operational and merger challenges continue to drag down United’s results

26 October, 2012

United’s 3Q2012 financial results reflect management’s declaration that the quarter was one of the toughest of the merger integration with Continental Airlines. The challenges were reflected in its modest USD6 million profit, and the carrier’s continuing lacklusture unit revenue performance. But the carrier pledges that the challenges it faced with an IT systems cutover and aircraft redeployment that fuelled its weak performance have been met, and it expects customer sentiment to improve now that operational disruptions have abated.

The carrier’s USD6 million profit was a 99% slide year-over-year. Excluding special items, the carrier recorded a profit of USD520 million. United also saw a significant 79% slide in operating income to USD200 million as expenses grew 5% to USD9.7 billion while total operating revenues fell 2.6% to USD9.9 billion.

Delta’s strong earnings performance remains clouded by unit cost pressures

25 October, 2012

A 91% hike in profits during 3Q2012 at Delta Air Lines was somewhat overshadowed by rising unit costs that have challenged the carrier for most of 2012. Carrier management pledges that a two-year scheme designed to remove USD1 billion in costs will allow Delta to consistently meet its return on invested capital targets of 10% to 12% and continue to produce revenue premiums to the industry.

But accompanying those declarations is a warning that unit cost pressure will continue into 1H2013 as Delta cautions the structural changes ushered in by its cost pairing plan will take some time to implement and take effect. As the carrier works on its long-term strategy of cost containment, its outlook for the remainder of 2012 remains favourable as strong corporate demand is driving the carrier’s ability to sustain revenue and yield growth.

Softening demand and cost creep weigh down Southwest’s 3Q2012 results

20 October, 2012

Warnings by Southwest Airlines that emerged during late 2011 of a cost creep are crystallising as the carrier is cautioning that a 6% hike in 3Q2012 unit costs will continue into 4Q2012. At the same time the airline is warning the industry at large faces choppiness as economic signals going forward are mixed. As a result Southwest is attempting to craft a strategy of cost cuts and revenue enhancements to bolster its defences against a potentially weaker economic environment in 2013.

The carrier recorded a profit of USD16 million during 3Q2012 that included USD81 million of negative special charges, compared to a USD140 million loss for the year-prior period. Factoring out special items, the carrier stated it has recorded a USD97 million profit for 3Q2012 versus a USD122 million profit for the year prior, which was still a 20% slide in quarterly profits. Southwest’s operating income also fell by USD174 million to USD51 million.

American Airlines' reorganisation costs drive 3Q2012 loss but revenue momentum increases

18 October, 2012

American Airlines is continuing a months-long trend of recording revenue strength relative to its peers, but its unit revenue performance during 3Q2012 diminished year-over-year as its net losses widened due to reorganisation costs. The company is incurring the losses as it works to regain consumer confidence after a wave of cancellations and delays during the last few weeks ushered in by labour unrest.

Even as American’s revenue performance continues to be strong, year-over-year performance for all carriers is starting to slow, and there are some slight signs that business demand could be softening as the US presidential election and general economic uncertainty make some businesses skittish about investing in non-essential corporate travel.

American’s parent company AMR widened its net loss year-over-year during 3Q2012 to USD238 million from a USD162 million loss during the year prior.

LAN-TAM parent LATAM’s first combined financials offer a mixed bag behind consolidated net profit

14 August, 2012

Latin America’s powerful new force LATAM Airlines Group recorded USD50 million in net income and USD23 million in operating income for 2Q2012, the first time the combined entity of LAN and TAM has reported consolidated quarterly results since the close of their historic merger on 22-Jun-2012. While the combined result was positive, the separate performance of each carrier was less favourable with TAM recording a USD14 million operating loss for 2Q2012 and LAN only turning a small operating profit of USD37 million. The combined result posted by LATAM only includes eight days of contribution from TAM as the merger was finalised near the end of 2Q2012.

TAM posted a BRL928 million (USD458 million) net loss during 2Q2012 driven by foreign exchange currency challenges and losses from the carrier’s fuel hedging portfolio. LAN recorded a 68% slide in net profits to USD5 million, driven by weaker conditions in its cargo business and one time costs associated with union negotiations and the merger with TAM. Going forward the combined company plans to focus much of its 3%-4% capacity growth in 2012 on the strong north-south routes to North America.

SAS and Finnair celebrate restructuring progress but Norwegian intensifies competitive pressure

13 August, 2012

As in the rest of Europe, the airline industry in the continent’s Nordic region is undergoing a structural change characterised by bankruptcies and intense competition from low-cost carriers with full-service network airlines implementing cost reduction programmes aimed at securing long-term sustainability or just survival. The region saw yet another operator cease operations in 2Q2012, Air Finland, following on the bankruptcy of Cimber Sterling, Skyways and City Airline in the first three months of the year.

Finnair made outstanding progress in 2Q2012 to lower its cost base and heighten revenue although it could not attain profitability while SAS Group’s pre-tax earnings halved year-on-year to SEK371 million (EUR45.1 million ) despite a one-off SEK346 million (EUR42.1 million) capital gain attributable to property transactions. Norwegian Air Shuttle improved in all operating parameters in the three months ending 30-Jun-2012 and reported a consolidated net profit of NOK90.5 million (EUR12.4 million), up 69% over the year-ago period. The LCC’s operating profit expanded to NOK322.3 million (EUR44.3 million) from NOK72.8 million (EUR10 million) in the year-ago period, and 2Q2012 EBIT margin was a respectable 10.2%.

Air Canada touts continuing transformation as 2Q2012 losses widen

9 August, 2012

Two major elements driving Air Canada’s 2Q2012 negative financial results – labour strife and pressure created by the sudden shutdown of its major maintenance provider Aveos – are the areas where the carrier sees prime opportunities in the future as new labour agreements allow for the creation of a new low cost carrier and negotiations with new suppliers ensure a substantial improvement in the costs of airframe maintenance.

Air Canada management during the last year has often cited the transformation that needs to occur at the carrier in order for the airline to compete in the new competitive environment ushered in by LCCs and spiking fuel prices. But in the short term the company still must deal with disgruntled employees and increasing competitive pressure that will not pause as Air Canada works to complete its transformation.

During 2Q2012 Air Canada widened its losses year-over-year by CAD50 million (USD50.2 million) to CAD96 million (USD96.4 million), while net losses for 1H2012 expanded by CAD241 million (USD242 million) to CAD306 million (USD307 million).

Lufthansa Group presses forward with cost cuts as 2Q profits fall 24%

3 August, 2012

Europe’s largest airline group has decided to further revise full-year capacity growth downwards to 0.5% and rigorously pursue its SCORE restructuring programme to protect yield and combat the dire operating environment marked by economic uncertainties in Europe, a night-flight ban at its main hub in Frankfurt, increased air traffic taxes and above all high fuel prices. Lufthansa Group’s decision follows an unsatisfactory performance in 1H2012 in its passenger airline business segment, which recorded an operating loss of EUR179 million, widening the EUR100 million operating loss recorded in the year-ago period despite a 7.2% increase in revenue to EUR11.2 billion.

The Group’s airlines recorded diverging results and highlights the need to cut costs at its largest unit Lufthansa while simultaneously increasing synergies between the different airlines. Lufthansa German Airlines amassed a 1H2012 operating loss of EUR300 million (nearly double the EUR146 million operating deficit reported 1H2011) while SWISS and Austrian Airlines earned EUR48 million and EUR26 million, respectively. Austrian’s operating performance reflects the ruthless restructuring implemented by CEO Jaan Albrecht and the noteworthy turnaround is in contrast to the declining performance of Lufthansa Group’s long-standing star SWISS.

WestJet’s cost pressures mount as 2Q profits surge

2 August, 2012

Canadian low-cost star WestJet delivered a 66% rise year-on-year in 2Q2012 profits to CAD42.5 million (USD42.2 million) as strong demand helped lift the carrier’s revenues by 9% to CAD809 million (USD804 million). But despite showing confidence that positive revenue trends will continue, WestJet has further revised its full-year 2012 unit cost guidance upwards driven by hiring staff to accommodate its winter schedule, shorter stage-lengths and a slight capacity reduction stemming from an aircraft reconfiguration project to install a premium economy section on its fleet of 100 Boeing 737s.

Similar to its US codeshare partner Delta, WestJet believes the costs it is incurring from certain investments in the short term will produce favourable margin expansion over the long term, particularly the addition of eights seats on its 17 737-800s as part of the reconfiguration project scheduled to begin in Aug-2012. The carrier is also increasing its technology spend to improve its product merchandising. But those investments along with other cost pressures has resulted in WestJet issuing its second revision to unit costs guidance excluding fuel for the full year to 3%-3.5% from 1.5% to 2.5%.

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