Analysis

Southwest remains cautious as it records strong 2Q2012 earnings

20 July, 2012

Executives at Southwest Airlines are remaining cautious even as the carrier recorded a healthy 42% increase in 2Q2012 profits on a nearly 12% rise in revenue. But the carrier’s cost creep continued throughout the first six months of 2012, and Southwest warns of rising unit costs throughout the remainder of the year. The anticipated cost pressure coupled with uncertain domestic economic trends have led Southwest to remain subdued in its outlook even as demand and pricing continue to remain strong.

Southwest’s 2Q2012 performance was strong across all the key financial metrics as net income increased from USD161 million to USD228 million year-over-year. Operating revenues increased from USD4 billion to nearly USD5 billion, aided by a 5% rise in average fares to USD150. The carrier also reported a impressive 122% jump in operating income during 2Q2012 to USD407 million. Southwest’s performance during the quarter was a marked improvement from the USD18 million net loss and 90% drop in operating income the carrier recorded in 1Q2012.

Etihad targets second year of profitability with 30% increase in revenue and declining cost base

5 July, 2012

Etihad Airways in 1H2012 reported another period of remarkable growth as revenue for the six months to 30-Jun-2012 rose 30% compared to 1H2011 to USD2.24 billion as the carrier increased capacity, added new destinations and improved its load factors. It did not disclose bottom-line profitability.

Six new aircraft were delivered in the six month period, including the carrier’s first three class Boeing 777-300ER. Etihad added services to Basra, Sahnghai Pudong and Nairobi in 1H2012. Lagos service was also launched on 01-Jul-2012.

With the new aircraft and expanded network, passenger numbers for the half year rose 30% to 4.89 million, while revenue passenger kilometres also rose 30%, reaching 22.73 billion. Capacity was up only 23%, to 29.5 billion available seat kilometres. With demand growth well ahead of capacity, passenger load factors rose 4.2ppt to 77.1%.

Qantas international loss forecast 'over AUD450m' for FY2012, but domestic now pressured too

5 June, 2012

Qantas announced today that its international operation is expected to report an earnings before interest and tax (EBIT) loss of over AUD450 million in 2011/12. This compares with a loss of AUD216 million attributed to international in FY2010/11. Overall forecast for the year is steeply downgraded to AUD50-100 million. The larger international loss is largely a result of one-off restructuring costs pegged at AUD370-380 million.

According to the carrier, the “structural issues” in the business have been compounded by the impact of global economic factors – including increased fuel costs, the high Australian dollar and weakness in the UK and Europe market – as well as allocating a AUD100 million one-off cost to last year’s industrial action. 

Inbound traffic to Australia has softened in the past two months, causing yields to fall, and outbound premium traffic is showing some signs of weakness. But Qantas Group’s domestic business has boomed over the past year, with Tiger temporarily quietened and Virgin relaxing its pressure on the leisure end of the market.

In Europe, Scandinavian airports are rising to the economic challenge

31 May, 2012

Major European airports – some privatised, others in the public sector – have released financial results for 1Q2012 and in two cases for FY2011. Unlike the last time an across-the-board results survey was undertaken, in 2011, there is a greater degree of uncertainty in some countries in this first quarter that is reflected in these reports but there still remain more positive than negative results, especially in Scandinavia.

Ryanair defeats European recession and posts all-time annual high net profit, but outlook less rosy

25 May, 2012

In spite of high oil prices and a Europe-wide economic recession Ryanair further distanced itself from its full service peers and reported a remarkable 25% increase in net profit for FY2011/12 to a record EUR503 million. Operating profit lifted 40% year-on-year to EUR683.2 million. Much to the annoyance and envy of Lufthansa and certainly Air France-KLM Group, which both recorded a deterioration of their financial performance in the most recent financial year, Ryanair improved its net margin by 1ppt to 12% and was able to maintain its operating margin at 14%. This is well above the EBIT margin performance of Europe’s full service carriers. Air France-KLM’s operating margin was negative in FY2011 while Lufthansa Group’s adjusted operating margin came in a 3% and IAG’s operating margin also reached a meagre 3%.

Fuel, foreign exchange and global events hit Emirates' profits, but momentum not slowed

17 May, 2012

A combination of high oil prices, regional political instability, volatile exchange rates and Emirates’ exposure to the global economic situation has brought the carrier back towards its international peers. Emirates reported a net profit of AED1.5 billion (USD409 million) in FY2011-2012, a dramatic 72.1% drop on the previous year’s result.

Even with the stiff headwinds pushing against it during the year, the carrier continued undaunted with its growth strategy. In FY2011-2012, Emirates took delivery of 22 new widebody aircraft and added 11 new destinations – a record number of new routes for the airline in a single financial year. It flew 34 million passengers at an 80% passenger load factor and increased its overall passenger traffic (revenue passenger kilometres) by just under 10%. Emirates now connects 122 destinations on six continents from its hub in Dubai.

Overall, revenue at the airline reached AED61.5 billion (USD16.7 billion), an increase of 16.5% from the previous year. Passenger revenue climbed 18.2% year-on-year, to AED49 billion (USD13 billion) due to the overall expansion of passenger numbers and flying, as well as higher fares.

Outlook for Asia's full-service sector dims as Singapore Airlines reports rare quarterly loss

9 May, 2012

The outlook for the normally buoyant Asian market has further dimmed following a rare quarterly loss for Singapore Airlines (SIA). The SIA Group’s first net loss since the global economic crisis of 2008 could be seen partially as an indication of its weakening market position. But in reality it is probably more indicative of the broader challengers facing Asia’s full-service airline sector.

SIA has reported for the three months ending 31-Mar-2011 (4QFY2012) a group operating loss of SGD5 million (USD4 million) compared to an operating profit of SGD166 million (USD132 million) for the same period last year. The group’s net loss for 4QFY2012 came in at SGD38 million (USD30 million), compared to a profit of SGD171 million (USD136 million) the previous year. SIA was widely expected to report a decline in profits for the sixth consecutive quarter, but the small loss – the first since 2QFY2010 – came as an unpleasant surprise.

Spiralling fuel costs trigger higher 1Q2012 loss at Air France-KLM

7 May, 2012

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).

Integration headaches trigger 1Q loss at United as its revenue performance lags the industry

27 April, 2012

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

26 April, 2012

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.

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