Financial

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

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%.

CAPA India Outlook 2012/13: Critical uncertainty prevails. Possible Air India shutdown

Indian aviation is facing its most uncertain phase in more than a decade. After reporting an estimated record loss of just over USD2 billion[1] in the 12 months ended 31-Mar-2012, India’s airlines are facing an equally challenging year ahead. Weak balance sheets, increasing costs, regulatory uncertainty, a sluggish Indian economy and a difficult global environment will continue to pile the pressure on airlines, especially the poorer performing carriers. However, this may in turn create market opportunities to exploit for those that are better positioned. Some of the key highlights of the CAPA India Outlook 2012/13, to be released on 31-May-2012, include:

- Indian domestic capacity growth of 7-8% in FY2012/13, traffic to grow 8-10%

- India’s airlines expected to post a combined loss of USD1.3-1.4 billion

- Jet Airways to prosper; major aircraft order expected

- Kingfisher Airlines revival dependent on foreign airline investment

Greek carriers fight an ominous jumble of recession, euro-woes and market fragmentation

Greece’s airlines are operating in an unsympathetic environment shaped by four consecutive years of economic recession and austerity measures, worries about a possible exit from the eurozone and a fragmented market with the largest carrier holding a mere 33% capacity share. The situation is untenable and revives the discussion if the European Commission (EC) in Jan-2011 took the right decision in blocking the proposed merger between Aegean Airlines and Olympic Air.

Both of Greece’s major carriers are loss making and Olympic, which had high hopes to become Greece’s new national carrier after it bought some of the assets of the state-owned and de facto-bankrupt flag carrier Olympic Airlines, was forced to refocus its strategy towards regional operations to survive. Olympic’s passenger numbers fell 23% in 2011 to 3.4 million from 4.4 million in 2010.

Japan Airlines' 17% margin may be envy of the industry, but JAL's outlook is less upbeat

Japan Airlines, with its recently achieved 17% operating margin, may be the antipode to Warren Buffet’s advice about investing in airlines, but JAL is not in an entirely enviable position. The forthcoming entry of low-cost carriers, if initially small in number, will soon have a seismic affect.

While JAL is so far more assiduously managing this new prospect than is competitor All Nippon Airways, it is showing signs of buckling.

Despite FY2012 offering growth and recovery from the tsunami and earthquake-affected FY2011, JAL projects profit to decrease. Recent months show JAL is growing capacity ahead of demand, which when combined with LCC proliferation will suppress profits in a doubtful market. JAL’s euphoria of a stellar year after its remarkable emergence from bankruptcy may be shortlived, for reasons beyond its control.

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

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.

IAG first quarter operating loss doubles on shabby Iberia performance and pilot strikes

International Airlines Group (IAG) has joined the ranks of its full service peers, Lufthansa Group and Air France-KLM Group, in reporting a deepening of its first quarter operating loss with higher fuel costs nullifying the rise in passenger traffic growth and unit revenues. IAG’s deteriorating results, however, also depict a two-tier performance within the Group giving little reason to rejoice the one-year old merger with an “ole”.  

Iberia contributed to the bulk of the operating loss whereas it accounts for approximately a third of the group capacity (in terms of ASKs) and group revenue. This highlights the urgent need to proceed with the restructuring of Iberia and resolve the dispute with its pilots. The 10 days Iberia’s pilots were on strike in 1Q2012 cost EUR25 million, according to IAG.

IAG’s Spanish unit incurred a EUR170 million loss from operating activities in the first three months of 2012, compared to a EUR100 million loss in the year-ago period. British Airways (BA) posted an operating loss before exceptional items of GBP62 million (EUR77 million) in 1Q2012.

Jazeera Airways and Air Arabia stick to their models and report double-digit increases in profits

Business is booming for LCCs in the Middle East. The two oldest low-cost airlines in the region – Air Arabia and Jazeera Airways – have both reported profitable first quarters, as the regional political environment cools and oil prices begin to trend back from their highs earlier in the year.

Both airlines have positive outlooks for this year. Jazeera Airways just reported its seventh consecutive quarterly profit – a record run of profitability for the airline – and aims to continue the success with its new strategic management plan (STAMP). Air Arabia achieved a double-digit increase in profit during the first quarter and the carrier plans to continue to enter new markets and launch new business ventures this year.

easyJet's reduced loss in 1H2012 reflects brighter skies and higher seat revenue

easyJet blew a kind wind through the cloudy European sky as it reported a better than expected net loss of GBP90 million for the six months ended 31-Mar-2012, despite increased fuel costs and the increased UK Air Passenger Duty (APD). Net loss for 1H2012 reduced 21.5% on the year-ago period on a 5.4% rise in passengers carried and a 15.7% growth in total revenues.

The good performance of Europe’s second largest LCC in terms of passengers carried contrasts with the worsening operating results of its full service peers like Lufthansa Group and Air France-KLM Group, which were not able to absorb spiralling fuel expenses, notwithstanding increased passenger traffic and higher passenger unit revenue in their most recent 1Q2012.

The financial year of easyJet differs from Lufthansa and Air France-KLM’s which both have the calendar year as their financial year.

Lufthansa 1Q2012 operating loss widens as crown-jewel subsidiary SWISS sinks into the red

Lufthansa Group will have to seriously score with its SCORE “Change for Success” restructuring programme to keep its position as Europe’s most profitable airline group after it incurred a consolidated EUR381 million operating loss for 1Q2012. Although 1Q is a seasonally weak quarter, the loss from operating activities in the first three months of 2012 deepened 125% from the EUR169 million operating loss posted in 1Q2011. The group’s net loss reduced 22% year-on-year, to EUR397 million from EUR507 million in the year-ago period, when results were negatively affected by changes in present value of hedging options.

The group had a negative operating margin of 5.6% in 1Q2012, a deterioration of 3.2 ppt compared to 1Q2011.

The worse than expected financial performance is indicative of the dire operating environment in Europe. Denmark’s Cimber Sterling Group filed for bankruptcy on 3-May-2012 following on the demise of Spanair in Jan-2012 and Malevin Feb-2012.

More subdued outlook for China in short term but some mighty changes afoot

The year of the dragon, 2012, is typically the mightiest of the Chinese signs, symbolising dominance and ambition; consequently this should be a time for making a large leap forward. However, indicators and performance in the first few months of 2012 suggest a more subdued outlook, at least on the surface with recent commentary coming out of China revealing a tone of caution and concern, a foreboding situation given the previous robustness of demand in the country. Yet below the surface, there are indeed some mighty changes afoot. Liberalisation and economic growth are laying the foundation for a rapid acceleration, for aviation overall, but more particularly for a new generation of airlines, most of which did not exist a decade ago.

IndiGo stands out as the only profitable carrier in India

IndiGo is an anomaly in the Indian market – it is the only profitable domestic airline this financial year (ending 31-Mar-2012). The carrier is however, like its peers, feeling the pressure in a tough operating environment. President Aditya Ghosh this month noted the carrier would see a decline in FY2012 profits, with the results substantially impacted by high fuel costs.

"Margins were under huge pressure because average price of fuel is now higher than what it was in 2009. There has been a growth in revenue and we will turn out to be profitable at end of the year. It will be much smaller profit than we have done in the previous year,'' he said in an interview with Business Standard. The carrier reported an 18% increase in profit to INR6.5 billion (USD130 million) in FY2011 but expects the FY2012 result to be a "fraction" of this figure. "For us profitability means that we are able to get spare parts on time, pay salaries on time, maintain integrity of schedules and plan for growth," he stated.

Vienna and Zurich airports’ real estate ambitions diverge

Vienna and Zurich airport groups, whose main airports host national flag carriers that are part of the Lufthansa Group, have posted their financial highlights for the FY2011, ended 31-Dec. While Vienna is focused on reducing what have been excessive levels of capital expenditure, Zurich is preparing for an increase to develop a new real estate project that has been likened to ‘a small town.’