Analysis for Asia
Persistently high fuel costs and challenges in a passenger system information technology cutover pushed United Airlines into a loss for 1Q2012 as its unit revenues lagged behind US legacy peers. Forecasts for the month of Apr-2012 show the lacklustre revenue performance continuing before heading into May-2012 when comparisons become increasingly difficult due to numerous fare increases pushed through in 2011. Despite the weak performance relative to the rest of the US airline industry, United remains confident it is taking the right steps through its merger with Continental Airlines to remain competitive over the long term. But for the moment the carrier is not disclosing a timetable of when it might close the unit revenue gap with its industry peers.
Special charges related to the passenger service system cutover in March and other integration expenses pushed United to a 1Q USD448 million loss compared with a loss of USD213 million the year prior. The cutover was the final step in combining United and Continental, and now that it is complete the Continental name has been retired.
Despite 1Q loss, Delta is bullish on profitability as it strengthens hubs and cuts Atlantic capacity
Delta Air Lines intends to improve this year on the USD1.2 billion profit it posted in 2011 despite recording a pre-tax USD36 million loss 1Q2012. The carrier believes strong demand and revenue trends will continue throughout 2012, allowing it to recoup increases in fuel expenditure that rose USD250 million during the first three months of 2012.
The pre-tax loss was a USD355 million year-on-year improvement of Delta’s 1Q2011 results, driven by a strong revenue performance despite headlines of a spreading recession in Europe and the uncertain ripple effects of the continent’s economic woes. Factoring in USD136 million in special items, including the favourable settlement of fuel hedges and a USD39 million gain from the settlement of its airport slot swap with US Airways, Delta recorded a USD163 million profit. Its net loss excluding those items was USD39 million.
Cathay Pacific’s financials in 2011 were never going to compare well to a fantastic 2010. Headline revenue were up 9.9%, but net profits fell 60.8% and profit margin dived 10.1 ppts to 5.6% from the previous year’s record 15.7%. Cathay cited the the instability of the global economy, the weakness of the air cargo market, the reduction of yields in economy class, the impact of natural disasters in Japan and Thailand, unrest in the Middle East and continued high jet fuel prices for the result – and predicted tougher times in 2012.
But in the circumstances, and relative to its peers, Cathay is performing well and is an extremely well managed airline. Over the past three years, management has reduced unit costs per ATK by 9.2%. Singapore Airlines has seen a 0.5% increase over the same period.
AirAsia has posted another year of profits across all three of its short-haul operations as the group continues to outperform nearly every low-cost and full-service carrier in Southeast Asia. AirAsia Group’s outlook for 2012 is again bright despite high fuel prices and challenging economic conditions. With IPOs planned for its Indonesian and Thai affiliates plus the launch of two new affiliates in the Philippines and Japan, 2012 promises to be another big year for AirAsia. Another milestone will also be reached this year as the group’s all-Airbus A320 fleet surpasses 100 aircraft.
AirAsia Malaysia, Thai AirAsia and Indonesia AirAsia all ended 2011 in the black from both an operating and net perspective. The Malaysian carrier posted “core net income” of MYR881 million (USD291 million), an increase of 18% from 2010, as revenues increased 13% to MYR4.47 billion (USD1.48 billion). Thai AirAsia turned a core net profit of THB1.909 billion (USD623 million), an increase of 14%, as revenues surged 33% to THB15.87 billion (USD520 million). Indonesia AirAsia recorded a core net profit of IDR149.654 billion (USD17 million), which represented a 53% drop compared to 2010 as revenues soared by 34% to IDR3.705 trillion (USD411 million) (see Background information).