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Ryanair reports a rare fall in annual profit, but aims for rapid rebound and goes in search of yield

20-May-2014 5:42 PM

In FY2014, Ryanair reported its first dip in profit since FY2009's oil price spike. Fares fell for the first time in four years, but total revenue per passenger held stable thanks to ancillaries, which were helped by the introduction of allocated seating. However, higher euro-denominated fuel prices contributed to higher total cost per passenger, leading to the fall in profit.

Ryanair expects the balance of these trends to be more favourable in FY2015, when it anticipates a return to profit growth. This year will see some cost increases in connection with its move into more primary airports, such as Rome Fiumicino and Brussels Zaventem, and higher marketing costs related to its new customer service and distribution initiatives. These include family discounts and a new business traveller product, website improvements and GDS distribution.

Ryanair has the lowest unit costs and unit revenues in Europe and, although both may increase as a result of its revised strategic emphasis on higher yielding airports and market segments, it should be able to retain both of these advantages.

Arab Air Carriers show that not all are created equal, but the rest of the world can learn from them

12-Dec-2013 4:42 PM

At the CAPA World Aviation Summit in Amsterdam in Nov-2013, one of the recurring themes was the success of Middle East airlines. Abdul Wahab Teffaha, Secretary General of the Arab Air Carriers Organisation (AACO), gave his thoughts on the development of Arab airlines, their success and the lessons to be learned.

Building on their geographical location, supportive government policies and relative political stability, some AACO carriers – notably Emirates, Etihad and Qatar Airways – have developed business models combining cost efficiency, high growth and a premium service. Of course, this formula has not been replicated everywhere in the region and it is a little misleading to talk about Arab carriers as a homogeneous group.

Nevertheless, other participants in the aviation sector, whether operator or government and whether in the Arab world or elsewhere, could learn some useful lessons from the success of the Gulf Three in particular.

Chinese airlines focus on domestic growth while international expansion remains the poor cousin

4-Nov-2013 12:35 PM

The growth of China’s “Big Three” airlines – Air China, China Eastern and China Southern – has been spectacular. China Southern’s RPKs have increased from 20 billion in 2000 to nearly 140 billion in 2012. Outside China, the airlines' growth has generally been noticed in terms of international flights, leading to some misconceptions about the sector.

While the Big Three are increasing international flights, they are also increasing domestic services in the same proportion. Domestic RPKs in 2012 accounted for 79% of China Southern’s total RPKs – little change from 2000’s figure of 78%.

This is perhaps baffling to those aware of the huge potential of the outbound Chinese market. While the demand exists, Chinese carriers have failed to capitalise on it – and for good reason. International yields are often significantly lower than domestic yields, and international services are often unprofitable. The implication for the international community is huge: China will continue to hesitate to dispense traffic rights until its airlines have stronger performance, which will enable them to balance foreign growth. But many of the problems are well within their power to solve.

Middle East low cost airlines report a profitable start to 2013

12-Sep-2013 8:00 PM

Regional political uncertainty and social turmoil have not been able to stop low-cost carriers in the Middle East from reporting another profitable six months. Two of the region’s key privately owned LCCs, the Sharjah-based Air Arabia and the Kuwait-based Jazeera Airways, have both posted strong profits in 1H2013.

In addition to this, the region’s other two LCCs, the privately owned nasair and the emirate of Dubai-controlled flydubai are anticipating profitable full year results. flydubai reported a maiden profit in 2012 and is looking to continue this momentum into 2013.

nasair has not yet reported a break-even year, despite being launched in 2007, but a restructuring in late 2012 has already seen the carrier reporting profits on a monthly basis.

The North Atlantic: the state of the market five years on from EU-US Open Skies

8-Mar-2013 3:40 PM

The EU-US Open Skies agreement came into force on 30-Mar-2008. The year before, in 2007, IATA had released a major report looking at the benefits of airline liberalisation. After internal deregulation within the US and the EU, and some limited moves in other parts of the world, the agreement was (and still is) the most significant step towards global aviation liberalisation. The North Atlantic is the world’s largest intercontinental air traffic market and the eyes of the world were on it as it took this step.

The EU-US Open Skies agreement opened up markets on both sides so that any carrier from either side could fly between any point in the EU and any point in the US. It also provided for a second stage of negotiations aimed at loosening foreign ownership controls. This was signed in 2010, but has not so far been implemented.

With the fifth anniversary of Open Skies approaching, this analysis takes the opportunity to review the state of the North Atlantic market since 2008. The launch of Open Skies into the jaws of a global recession blurs its impact, but the main detectable results of Open Skies seem to be in the increased concentration of capacity in the hands of mega carriers and alliance joint ventures, with consequent benefits for load factors and yields.

Airline profitability prospects improve but profit margins remain anaemic

18-Oct-2012 10:00 PM

Airline profitability prospects have improved for 2012, with IATA upwardly revising its 2012 financial forecast on 01-Oct-2012, predicting a USD4.1 billion profit compared to USD3 billion forecast in Jun-2012.

However, IATA director general and CEO Tony Tyler cautioned that “we should not get too excited” about the revision, with profits still to be less than half the USD8.4 billion earned in 2011 and considerably lower than the USD19.2 billion achieved in 2010. A return to those levels is not anticipated any time in the near future.

Despite the upward revision, profit margins also remain anaemic, with Mr Tyler noting that the revision only increased net profit margins from 0.5% to a still “miniscule” 0.6%.

Airline industry profitability is expected to pick up modestly to USD7.5 billion in 2013, amid slightly faster growth, lower oil prices combined and an upwardly revised GDP forecast.

Profits keep rolling but growth is elusive for Jazeera Airways

24-Aug-2012 10:42 PM

Jazeera Airways is now six months into STAMP, the business programme designed to take the positive momentum from its financial turn-around programme and return the carrier to a growth trajectory. The programme is based around three key pillars: enhancing yields; improving the carrier’s load factors to a modest 68% by 2014; and leading in market share on the routes it operates in and out of Kuwait.

All of this will be achieved while the carrier maintains the same network of 19 destinations out of Kuwait for the next three years.

Even though Jazeera Airways managed to report a record new profit of KWD3.8 million (USD13.5 million) in 1H2012, the first half of the year has not been an unqualified success for the carrier. While it turned its seventh and eighth consecutive quarterly profits, the carrier’s passenger traffic and load factors have suffered due to the regional unrest in the Levant.

Etihad Airways nears USD1 billion revenue as quarterly growth slightly outpaces capacity

5-Apr-2012 3:38 PM

Following Etihad’s first annual profit, the Abu Dhabi-based airline reported revenue jumped 28% year-on-year for the three months to 31-Mar-2012, to a record USD989 million.

The increase corresponds to a 27.4% surge in passenger traffic in the quarter, up by just over half a million passengers, indicating Etihad is growing revenue very slightly ahead of capacity growth. Etihad Airways added new services to Tripoli, Shanghai and Nairobi during the quarter, with passenger numbers reaching 2,360,000.

2011 airline profitability revised upwards but profitability to weaken in 2012: IATA

21-Mar-2012 5:19 PM

The global aviation industry could report losses of USD5.3 billion in what is set to be another tough year in 2012 amid weak global GDP growth and rising fuel costs. Average oil prices could reach as high as USD135/bbl in 2012, according to IATA’s ‘oil spike’ forecast for 2012. However, the industry body’s ‘central forecast’ outlines an expected profit decline from USD3.5 billion to USD3 billion in 2012 for an “anemic” 0.5% profit margin, based on fuel prices at USD115/barrel. However, the forecast marks an improvement from the ‘banking crisis’ forecast provided in Dec-2011 of a potential USD8.3 billion loss.

These latest observations from IATA are yet another reminder of the fragility of the aviation business. Its exposure to myriad externalities and uncertainties make sustained profitability difficult.

Even with record profit Jazeera Airways stays on its new course of limited growth

16-Mar-2012 6:11 PM

What a difference two years can make. After a dismal 2009 and 2010, Jazeera Airways Group has spent the past 24 months undergoing one of the most comprehensive restructuring and turn-around programmes in the industry, transforming its results from deep losses to record profits and marking out a clear path for a sustainable future, aided by its higher-margin Sahaab leasing division that generated 52% of profits in 2011.

Following expansion and development since the carrier launched in Oct-2005, Jazeera had been forced to abandon its second base at Dubai and was struggling in its home market at Kuwait. The local market, opened up by the Kuwait government with its open skies policy, was characterised by overcapacity, low load factors and stagnant yields. During 2009, 44% of all seats operating into Kuwait were unfilled. In 2010, 51% were empty.

Bad and worse – IATA’s two-case scenario for 2012

9-Dec-2011 11:24 AM

IATA has unusually provided two forecast scenarios for 2012 – a ‘central forecast’ and ‘banking crisis’ forecast – or perhaps more accurately, the ‘bad’ and ‘worse’ forecasts. Both show that global airline profitability is expected to be sharply lower than previously forecast. IATA is downgrading its ‘best case’ 2012 profit by 29% from USD4.9 billion, as forecast in Sep-2011, to USD3.5 billion for a net profit margin of just 0.6%, down from the previous forecast of 1.2%. The USD1.4 billion downgrade, which highlights the continued profitability challenge facing the world’s airline industry, will see global airlines report at best a 49% year-on-year reduction in net profitability from forecast profit levels of USD6.9 billion in 2011.

The reduction reflects the risk of recession in Europe and slower global economic growth, with IATA warning the industry could face a loss of USD8.3 billion if the euro zone crisis becomes a full-blown banking crisis. This ‘banking crisis’ forecast foresees every region having a net loss in 2012 while the ‘central forecast’ sees only Europe and Africa reporting net losses in the year. Meanwhile, the profitability forecast for 2011 remains unchanged, at USD6.9 billion for a weak net margin of 1.2%.

Airlines and airports feeling impact of global economic weakness with continued freight pressures

30-Nov-2011 2:07 PM

Airlines and airports are feeling the impact of the current global economic weakness and declining consumer spending in Europe, which is having a noticeable impact on air cargo volumes. Cargo traffic, which generated USD66 billion in revenue in 2010, has declined every month since May-2011, according to IATA upon the release of its Oct-2011 traffic results, with a 4.7% year-on-year reduction in cargo demand in Oct-2011 amid reduced manufacturing confidence and businesses switching to slower modes of transport.

“Cargo is the story of the month. Since mid-year the market has shrunk by almost 5% and this is far greater than the 1% fall in world trade. Air freight is among the first sectors to suffer when businesses confidence declines,” IATA director general and CEO Tony Tyler said. Meanwhile, Boeing CEO Jim McNerney separately stated the company has seen a softening of freight demand in recent months, describing the freight market as a “watch item”.

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