While the global aviation industry is expected to post a much-improved profit of USD15.1 billion in 2010 followed by USD9.1 billion in 2011 – and numerous airlines have reported either record bottom lines or considerable improvement in 4Q2010 and FY2010 – four LCCs have lowered their profit expectations.
On 26-Jan-2011, airberlin stated that following preliminary analysis of companies in the Air Berlin Group, Air Berlin PLC expects that group EBIT in 2010 – including the business of NIKI Luftfahrt GmbH for the last six months of the year – will amount to a negative single-digit million figure. This equates to a lowering of the carrier’s profit expectations by between EUR25 million and EUR34.9 million.
The deviation from planning is due to exceptional circumstances in Nov-Dec-2010, in particular, the harsh weather conditions in Europe, an air traffic controller strike in Spain and the announcement of strikes against Air Berlin PLC and Co Luftverkehrs KG. The final analysis and confirmation of the financial results remains pending with full financial results for 2010 to be published on 24-Mar-2011.
Europe’s second largest LCC, easyJet, similarly warned on 20-Jan-2011 that first half losses may double in 2011 to between GBP140 million and GBP160 million, compared with a pre-tax loss of GBP78.9 in the previous corresponding period.
Reasons include increasing fuel costs, an uncertain economic outlook and the impact of poor weather. “The current market price of jet fuel USD897 a metric tonne compared to USD681 a metric tonne a year ago and therefore at current jet prices and dollar rates, fuel costs are anticipated to be around GBP1.17 a seat higher than in the first half of last year and consequently the usual first half loss is anticipated to be between GBP140 million and GBP160 million, compared to a pre-tax loss of GBP78.7 million in the same period last year,” said a company statement.
easyJet, however, stated it remains “on track to be profitable again this year” adding that it has posted a first-half pretax loss for the last eight reporting periods while recovering to record a full-year profit.
easyJet founder and its largest shareholder, Sir Stelios Haji-Ioannou, separately said the carrier’s projected first-half losses indicate it will fail to generate sufficient annual earnings to deliver a targetted 12% return on the capital employed to build a fleet in excess of more than 200 aircraft. See related article: easyJet warns of deepening first half loss; stocks tumble 16%, worst since 2004
In Australia, Virgin Blue stated on 25-Jan-2011 the recent flooding in Queensland and the slowdown in consumer spending across the leisure sector could have a significant impact on the airline's trading conditions over the next few months. The downgrade is the carrier’s third since May-2010.
The airline, which has more than half of its business in Queensland, stated the affect on revenue could be "up to AUD40 million (USD40 million)" although a further update will be provided at the half-yearly results release on 23-Feb-2011. The company's underlying net profit (before tax and excluding non-recurring items and ineffective hedging) for the six months ended 31-Dec-2010 will be in the AUD70-75 million (USD70-75 million) range, rather than the AUD75.6 million achieved in the previous corresponding period.
Virgin Blue stated that it expects to post a net profit after tax between AUD23 million to AUD26 million, compared with the prior corresponding period’s result of AUD62.5 million.
Tiger Airways Australia to see 'adverse impact on earnings' in 4Q
Similarly, Tiger Airways, in its 3QFY2010 results released on 28-Jan-2010, commented that recent weather events in Australia will have an “adverse impact on earnings” of Tiger Airways Australia, and hence the group, in the fourth quarter. As a consequence, plans to increase the fleet beyond 10 aircraft in Australia have been deferred until Apr-2011 although Tiger Airways Australia will increase its seat capacity by at least 20% for the period Apr-2011 to Oct-2011.
Qantas also expects to be affected by the weather events as well as its A380 engine problems.
According to an RBS report on 14-Jan-2011, Qantas’ A380 engine problems will reportedly reduce the airline’s pre-tax profit by 10%. RBS expects the A380 engine explosion and its aftermath will in 2011 cost Qantas up to AUD80 million. The broker stated Rolls-Royce is likely to cover at least 75% of Qantas’ losses, but it doesn’t expect this to happen until FY2011/12. As a result, RBS reduced the airline’s FY2011 pre-tax profit estimate to AUD766 million and increased its FY2012 estimate by 5.1% to AUD1.25 billion. RBS also warned of “reputational damage”, which may lower load factors and yields.
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