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Skymark Airlines - Earnings succumbing to turmoil; falls back into the red in 1H09

4-Nov-2008
  • Earnings succumbing to turmoil; falls back into the red in 1H09;
  • But slowly recovering from operational challenges;
  • Downwardly revises FY08/09 forecast;
  • To increase B737 cockpit crew by 12-13 pilots by the end of 2008 as part of transition from B767 equipment.

Japanese LCC, Skymark Airlines, slipped to an operating loss of USD27.3 million in the six months ended 30-Sep-08 (after reported an operating profit of USD28.0 million in the previous corresponding period) and a net loss of USD21.1 million (compared to a net profit of USD26.7 million in 1H07). Revenues also slipped in the period, by 17.8% year-on-year, to USD224.7 million.

Skymark traffic highlights for six months ended 30-Jun-08

Currency: USD

% Change

Revenue (mill)

224.7

-17.8%

Operating profit (mill)

(27.3)

^

Net profit (mill)

(21.1)

*

Operational challenges almost overcome in Sep-08

Skymark's financial performance was largely a result of the airline's cockpit crew shortages, which have significantly affected its operations and market perception, an important dimension in the Japanese market, in 2008. However, Skymark's operational problems, which resulted in the cancellation of 633 services between Jun-08 and Aug-08, have largely been overcome as of the end of Sep-08.

The carrier has also progressed with its fleet strategy in Sep-08, embarking on the task of downsizing its aircraft from widebody B767-300ER to narrowbody B737-800 equipment, resulting in an overall capacity reduction of 14% year-on-year during the period, and a 21% year-on-year passenger reduction. Despite the capacity reduction, load factor was also down, by 6.3 ppts, to 77.3%, reflecting the weak Japanese economy.

Skymark traffic highlights for Sep-08

Currency: USD

% Change

Pasengers

254,000

-21%

Capacity (seats)

329,000

-14%

Load factor

77.3%

-6.3 ppts

Skymark plans to complete its transition from B767s to B737s by the end of 2008 (the carrier currently operates a fleet of one B767 and eight B737NGs, with an additional B767 in storage). To support this transition, Skymark plans to increase its current 23 B737 cockpit crew by 12 to 13 by the end of the year, and to 48 pilots by Mar-09. Many of the pilots currently being trained are American.

The LCC is also planning to add seven aircraft and almost double the number of pilots it employs to approximately 80 by the end of Nov-11. The growth will be necessary to support plans to expand its network in preparation for additional slots at Haneda Airport, which will become available when the airport opens a fourth runway in 2010.

Skymark fleet plans: 2008 to 2011

The carrier, meanwhile, has also resumed its normal daily operations of 28 services from Tokyo Haneda to Fukuoka (10), Sapporo (7), Kobe (5), Naha (3), Asahikawa (3).

Skymark Airlines capacity breakdown by route (seats per week as % of total): Week commencing 03-Nov-08

Skymark, currently Japan's largest LCC, currently has just a 2.5% capacity (seats) share of the domestic Japan market. This is a reduction from the carrier's 3% capacity share in Mar-08.

Japan domestic capacity share by carrier (seats as % of total): Week commencing 27-Oct-08

Downwardly revises FY08/09 forecast

Skymark has also revised its financial forecast for FY08/09 (12 months to 31-Mar-09), in light of current challenges in the operating environment.

Skymark financial forecasts for FY08/09 (12 months ending 31-Mar-09)

Currency: USD

Revised forecast

Previous forecast

Revenue (mill)

462.7

519.9

Operating profit (mill)

-29.1

+1.1

Net profit (mill)

-22.6

2.2

Skymark Background Information:

  • Founded in Aug-96 and commenced operations in Sep-98;
  • Based at Tokyo Haneda Airport, and operates domestic services to Sapporo, Kobe, Fukuoka, and Naha (Okinawa);
  • Interested in commencing international services to Taiwan and Manila when Haneda Airport opens its fourth runway in 2010;
  • Currently operates a fleet of four B767-300ER and six B737-800 aircraft, and plans to transition its entire fleet to B737-800s by the end of 2008, in a further attempt to increase cost efficiency;
  • Planning to add seven aircraft by the end of Nov-11.

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