Analysis for Europe/MEA
Incessantly high fuel costs and an unwelcome increase in employee expenditure, highlighting the urging need to restructure workforce productivity and pay, pushed Air France-KLM Group into a deeper loss for 1Q2012 despite a surprising rise in passenger unit revenue and buoyant passenger traffic. Operating loss for the first three months widened almost 50% from EUR403 million to EUR597 million in the year-ago period. Air France-KLM’s net loss remained flat at EUR368 million but benefitted from a one-off gain of EUR98 million relating to the sale of a stake in Amadeus.
Air France-KLM is not Europe’s only airline group to report worsening 1Q2012 results. Lufthansa Group, Europe’s largest airline group, has posted a EUR381 million operating loss for the first three months of 2012, compared to a EUR169 million operating loss posted in 1Q2011 and announced it will cut 3500 full-time jobs in administrative departments worldwide over the coming years as part of its SCORE programme. SAS Group also has reported a 1Q2012 net loss of SEK729 million (EUR82 million), doubling its 1Q2011 net deficit of SEK373 million (EUR42 million).
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.
Following Etihad’s first annual profit, the Abu Dhabi-based airline reported revenue jumped 28% year-on-year for the three months to 31-Mar-2012, to a record USD989 million.
The increase corresponds to a 27.4% surge in passenger traffic in the quarter, up by just over half a million passengers, indicating Etihad is growing revenue very slightly ahead of capacity growth. Etihad Airways added new services to Tripoli, Shanghai and Nairobi during the quarter, with passenger numbers reaching 2,360,000.
The Lufthansa Group has reported a positive overall result for 2011 with an operating profit of EUR820 million. But this represents a EUR200 million drop in operating profits compared to 2010 as the airline dealt with weaker economic conditions within the EU, rising fuel prices and increasing regulatory pressures through environmental taxation. 2012 will see the Group search for synergies and cost savings under its 'SCORE' programme, and increased attention will be paid to Austrian Airlines as it attempts to return to profitability through restructuring.
Lufthansa Group’s revenue in 2011 rose 8.6% to EUR28.7 billion. The Group incurred a net loss of EUR13 million but this was driven by a EUR285 million loss “from discontinued operations”. This resulted from the Group’s sale of bmi to the International Consolidated Airlines Group (IAG) in late Dec-2011.
Air France-KLM has reported an operating loss of EUR353 million for 2011, a significant turnaround from its 2010 profit of EUR28 million - and follows Lufthansa's 18% year-on-year decline in operating profit to EUR820 million last year. This has been a difficult year for the Franco-Dutch airline group, as it battled rising fuel prices and uncertainty across many of its markets. The start of 2012 saw the Group launch ‘Transform 15’, its turnaround programme aimed at restoring profitability. The 2011 loss emphasises the need for this programme to deliver results, given a continuing uncertain outlook as Europe's economic troubles persist amid high fuel prices.
The Group’s revenue was unable to absorb rising fuel expenses; although total revenues increased by 4.5% year-on-year to EUR24.36 billion, operating costs rose 6.2% to EUR24.72 billion. Fuel expenses alone surged 16.3% year-on-year.
International Consolidated Airlines Group (IAG) reported a strong FY2011 result with profit more than doubling year-on-year despite its fuel expense increasing nearly 30%. British Airways led the strong result while Iberia still struggled. The 2012 outlook for the Group remains uncertain due to weak European markets and labour unrest in addition to rising fuel expenses.
IAG reported full year operating profit of EUR485 million and net profit of EUR527 million. Fuel expenses rose 29.7% to EUR5.1 billion. Passenger revenue outgrew capacity increases with 11% higher revenue and capacity increase of 7.1%. Unit passenger revenue rose 3.6% with overall unit revenue up 3.1% while premium traffic saw good growth of 5.7% and outgrew non-premium revenue growth. Despite increases on the passenger side of the business, cargo revenue remained constant.