Analysis

Air France-KLM sinks deeper into the red as it further revises capex and capacity

31 July, 2012

In spite of growing its passenger revenues nearly 7%, Air France-KLM Group saw its 2Q2012 net loss widen year-over-year as a result of provisions for restructuring and a drop in the value of fuel hedging contracts. The Franco-Dutch group recorded a deficit of EUR895 million for the three months ending 30-Jun-2012, more than quadruple of the EUR197 million net loss accrued in the year-ago period.

Air France-KLM took a special charge of EUR368 million related to its Transform 2015 restructuring programme, principally to fund a voluntary redundancy plan announced at Air France in Jun-2012. It also took a EUR372 million accounting charge related to the hedging of fuel prices. Excluding these non-cash items the Group’s net loss for 2Q2012 would be “by no means abnormal”, Air France-KLM Group CFO Philippe Calavia noted during a discussion of the company's results.

Integration challenges continue to plague United’s financial performance

27 July, 2012

Special charges stemming from the integration of United and Continental after their 2010 merger were a major contributor to the company’s 2Q2012 profits falling 37% year-over-year. Despite echoing comments made by other carriers that demand remains relatively stable against a backdrop of macroeconomic uncertainty, United’s revenue performance continues to lag behind its US industry peers, and it is not clear when the gap will be closed.

United recorded USD206 million in special charges during 2Q2012, of which USD137 million, or 66%, stemmed from integration costs related to the merger. The charges pressured the carrier’s quarterly profits, which year-over-year fell from USD538 million to USD339 million. Excluding those items United’s profit for 2Q2012 grew to USD545 million.

Delta’s cost pressures mount as revenue growth remains solid

26 July, 2012

Delta Air Lines enjoyed strong revenue growth during 2Q2012 as demand remained steady despite the negative macro economic headlines from Europe that continue to fuel global jitters. The carrier’s forward bookings for 3Q2012 indicate both corporate and leisure demand is holding steady despite underlying economic uncertainty. But as the carrier’s revenue performance continues to be strong, Delta is facing steady cost headwinds throughout the remainder of the year as a result of capacity cuts and product investments that the carrier assures will produce margin gains in the future.

Unfavourable settlements in its fuel hedging portfolio drove Delta to a 2Q2012 loss of USD168 million. Excluding special items that included the losses on fuel hedges and expenses associated with 2,000 employees opting to take early-out packages, Delta’s profit during the quarter was USD586 million, compared with a USD198 million profit in 2Q2011.

easyJet counters Europe’s pessimistic mood and raises full-year profit expectations

26 July, 2012

easyJet beat the continuous run of disappointing economic data in Europe and has lifted its full-year pre-tax profit guidance after recording a strong performance for the three months ending 30-Jun-2012. Europe’s second largest LCC in terms of passenger numbers now expects to report a profit before tax of between GBP280 million and GBP300 million for its fiscal year ending 30-Sep-2012, above analyst estimates and above the company’s reported pre-tax profit of GBP248 million in FY2011 and GBP154 million in FY2010.

easyJet’s revenues in 3QFY2012 (three months ending 30-Jun-2012) rose 11% year-over-year to GBP1 billion as passenger numbers increased 11% to 16 million and total revenue per seat grew 2.8%. The airline increased the number of seats flown year-on-year by 7.5% to 17.9 million and load factor improved 2.8ppt to 89%. The solid operating performance was coupled with a 3% reduction of cost per seat excluding fuel and follows an enhanced operating and financial performance in its typically weak 1HFY2012.

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.

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