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Cimber Sterling: reduction of forecast for FY 2009/10, substantial improvement for FY 2010/11

Direct News Source

24-Feb-2010 Cimber Sterling Group A/S reduces its forecast for the 2009/10 financial year from the forecast made in the Q3 interim report on 17 December 2009. The reduction is made because of increased competition with severely squeezed fares, lower demand and extra costs related to the severe winter weather.

Average passenger revenue for Q3 is expected to have dropped by 7% as a result of the competition in the market. The strong growth in the company's activities continued, as the number of passengers carried in Q3 2009/10 was 60% higher than in FY 2008/2009, but 11% lower than forecast. We therefore reduce our revenue forecast for FY 2009/10 from DKK 1,675-1,725 million to DKK 1,545-1,605 million, whilst the forecast of operating profit (EBIT) is reduced from a loss of DKK 60 million to a loss in the range of DKK 200-220 million (excluding IPO costs of approximately DKK 10 million). For FY 2010/11, we forecast EBIT to be in the order of +/- DKK 30 million. The expected significant improvement as compared with the current financial year is driven by the great interest in the summer programme 2010, a substantially optimised production programme, the effects of the already initiated project programmes "Odin" and "Thor, and an assumption that we have now reached the bottom with the dramatic price falls.

Like the rest of the airline industry, Cimber Sterling Group A/S was extraordinarily hard hit in Q3 2009/10. As announced in connection with the release of the H1 interim report on 17 December 2009, the market situation has been characterised by previously unseen pressure in the market on fares and lower demand. The negative trends described last December continued with renewed strength during the rest of December and in January and were further intensified due to the severe winter weather with many flight cancellations, de-icing, etc.

The number of passengers carried in Q3 2009/10 was 369,334, which was 60% more than in FY 2008/2009, but 11% less than forecast in the H1 interim report released on 17 December 2009. Average passenger revenue (passenger revenue divided by number of own passengers) was DKK 577 during the same period, which was 7% lower than expected. The traffic figures for February will be released on 5 March 2010 at 11.00 a.m.

Cimber Sterling Group A/S believes that the negative market conditions from Q3 will continue in Q4, and we therefore have to reduce the forecast of revenue for FY 2009/2010 from DKK 1,675-1,725 million to DKK 1,545-1,605 million, and the forecast of EBIT from a loss of DKK 60 million to a loss in the range of DKK 200-220 million (excluding IPO costs of approximately DKK 10 million)

In spite of the developments in operations, liquidity has been stable at the level of DKK 100 million since the turn of the year.

Profitability a high priority

Since the release of the H1 interim report in December 2009, Cimber Sterling Group A/S has decided put additional focus on profitability in light of the fact that the operating situation has not developed as expected.

As a consequence of this and the intensified competitive situation, it has been decided to optimise capacity utilisation and reduce the activity level to 23 aircraft units in own production, down from an expected 28 aircraft units. Two CRJ200 aircraft will be returned to the lessor at the end of April, Boeing 737s number seven and eight will not be leased, and we expect to continue leasing out one ATR72 instead of insourcing it for own production in late 2010. However, the substantial optimisation of Cimber Sterling's traffic programme for the summer of 2010 is expected to result in an increase in the number of seats offered as well as the ASK by more than 20% as compared with the summer of 2009.

As a further initiative designed to enhance Cimber Sterling's competitive strength, Management intensified the implementation of the "Odin" and "Thor" project programmes in January and February (see announcement no.19). The programmes are designed to increase sales revenue ("Odin") and reduce costs ("Thor") and are expected to have an EBIT effect of DKK 120 million in FY 2010/2011 as compared with a previously expected DKK 100 million. The initiatives concerning changed rules for baggage and in-flight catering as well as the expected profit effect have been communicated. The company will communicate a number of additional initiatives on an ongoing basis.

There has been great interest in Cimber Sterling's summer programme since it was released at the turn of the year. This together with better capacity utilisation and targeted reduction of all costs makes us forecast EBIT for FY 2010/11 to be in the order of +/- DKK 30 million.

This forecast is based on the assumption that the demand for tickets in the summer programme will continue and that we have reached the bottom of the dramatic price falls.