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Meridiana: losses narrowed in 2013, but cost reductions remain crucial for Italy's other airline

22-Jul-2014 8:50 PM

Etihad's planned investment in Alitalia has attracted most of the aviation headlines in Italy recently. But what of Italy's number two indigenous airline, Sardinia-based Meridiana?

Together with its subsidiary Air Italy, Meridiana has a market share of 4% ranked by the number of scheduled seats to/from Italy in the week of 21-Jul-2014. The 2013 annual report of its parent group reveals that it narrowed its losses last year, by lowering cost per passenger more quickly than the fall in revenue per passenger.

Nevertheless, with strong LCC competition continuing to grow, revenue per passenger is likely to remain under pressure and Meridiana will need to find further cost efficiencies if it is to return to profitability. Recent industrial action over plans to outsource part of its operations to other airlines and over its redundancy programme highlight the scale of the challenge in achieving this.

Norwegian Air Shuttle's 2Q and 1H operating loss as 41% capacity increase pressures yields

18-Jul-2014 10:00 AM

Norwegian Air Shuttle slumped to an operating loss in 2Q2013, after having previously established 2Q as a profitable quarter. This followed a record loss in 1Q2014. It will need to do a lot of making up to achieve a profit for the full year. Norwegian said it suffered from one-off costs related to the delay in Dreamliner deliveries and its first ever strike, in addition to negative currency movements. Nevertheless, while its CASK target for 2014 has slipped a little, it has a strong cost focus and remains broadly on course to achieve its medium term unit cost goal.

As in 1Q, the real problem was that unit revenue, RASK, fell more rapidly than CASK. This was the result of strong capacity growth in Norwegian's intra-Europe markets, its new bases in London, Barcelona and Madrid and its new long-haul routes. It has modestly trimmed its 2014 capacity growth plans, but it still has a very large number of aircraft on order until 2022.

It has established an Irish leasing vehicle through which it plans to lease out any excess aircraft, perhaps mindful of the fact that aircraft lessors are typically more profitable than aircraft operators. Meanwhile, 2014 looks set to deliver a poor result.

CityJet's new owner Intro Aviation to acquire new fleet, rebrand, move HO to Dublin: Peter Oncken

9-Jul-2014 3:44 PM

A couple of months after acquiring regional airline CityJet from Air France-KLM, new owner Intro Aviation faces a crucial decision about replacing CityJet's fleet of ageing BAE regional jets. This is likely to provide the key to turning around the heavily loss-making airline, whose main base is at London City. In spite of this being a high yield market from which to operate, and in spite of capacity cuts, the final years under Air France-KLM ownership were characterised by weakening unit revenues.

Decisions about rebuilding the network in a manner better suited to CityJet's market, and better able to bolster unit revenues, will depend to a great extent on its final choice of aircraft.

Moreover, the fleet choice should also have a considerable bearing on unit costs in the future. With three manufacturers in the running (Bombardier, Embraer and Sukhoi), the airline may shortly be able to provide a clearer view of how its negotiations are progressing.

Jet2.com. Good & bad news. Parent Dart Group announces FY2014 profit growth & FY2015 profit warning

27-Jun-2014 5:00 PM

Jet2.com reported healthy growth in traffic, revenues and operating profit in FY2014. The leisure LCC's parent company Dart Group PLC achieved even better results thanks to the expansion of the package holiday business Jet2holidays. Jet2.com operates among the highest load factors in the European airline sector and has been steadily profitable for the past six years.

However, the growing seasonality of the business has increased its dependence on a strong summer, while winter losses continue to grow. The company flagged this with its 1H results in Dec-2013 and even hinted that winter losses could have wiped out full year profit growth. FY2014 did achieve profit growth, but current weakness in demand in its markets has led Dart Group to issue a profit warning for FY2015, the latest in a series of downward revisions to the earnings outlook for European airline businesses.

LOT Polish Airlines starts to look beyond restructuring to improve its lot

26-Jun-2014 4:00 PM

LOT Polish Airlines CEO Sebastian Mikosz said recently that profitability must be developed through passenger retention, expansion of its customer base and the introduction of new options for travel, services and comfort (Future Travel Experience, 20-Jun-2014). Its recent focus has been on the restructuring plan submitted last year to the European Union, involving cuts to capacity and costs.

LOT awaits final approval from the EU for its restructuring plan, which was required in connection with state aid provided by the Polish government in Dec-2012. The airline has said that it will not consider a second tranche of state aid before Sep-2014. It needs EU approval before it can decide its longer term future, including the possibility of seeking new investors, although it has reportedly started to develop a new five year strategic plan. Meanwhile, the privatisation process has gone very quiet.

Mr Mikosz is right to plan for the post restructuring world, but is faced with the need also to continue to make LOT's cost base more competitive against the LCCs that operate the majority of seats in the Polish market.

SAS yield decline outweighs cost cuts to give wider losses in 2Q. Market share versus profitability?

20-Jun-2014 11:00 AM

SAS posted another pre-tax loss in 2QFY2014 after a weak 1Q result. For 1HFY2014, its pre-tax loss before non-recurring items was more than three times that of the same period a year earlier. It continued to make good progress with its 4XNG cost reduction programme, achieved further load factor gains and improvements in labour productivity and aircraft utilisation. However, the positive effect of these factors was wiped out by plummeting yields, attributed by SAS to overcapacity in Scandinavian markets.

In response to the weakening revenue and profitability environment, SAS has announced a new cost savings target and is taking action to "win the battle for Scandinavia's frequent travellers" through improvements to its product offering. Its recent re-capitalisation gives it more time to attempt to build a sustainably profitable business, or at least one that may become part of the next phase of European consolidation (whenever that might be).

Air Austral makes a remarkable return to profit, now with strong market positions on most routes

17-Jun-2014 9:00 AM

Air Austral is one the European Union's furthest flung airlines, although it ranks as the second largest airline in the Indian Ocean by seat capacity. Based in the French territory of La Réunion, it shares with many European airlines a recent history of loss-making and restructuring.

Under CEO Marie-Joseph Malé, a former Air France executive, Air Austral's restructuring programme is now making an impact. The past two years have seen an improvement in the company's indebtedness and now a return to profitability in FY2014. This followed substantial losses prompted by economic weakness in Europe hitting leisure demand for the Indian Ocean French territory and an over-ambitious expansion programme.

The turnaround represents a significant achievement, but Mr Malé will no doubt be anxious to ensure that he builds on this and that Air Austral can be sustainably profitable. His agenda includes expanding the airline's partnerships, making further cost reductions and finally resolving the problem of what to do about Air Austral's order for two all economy class A380s.

Flybe is reborn with a return to profit after three years of losses. Now to consolidate

12-Jun-2014 7:00 PM

Announcing his first set of annual results as Flybe CEO, Saad Hammad declared that the airline had been "reborn" in FY2014. It was certainly a year of great significance in Flybe's 35 year history. The company returned to profit after three years of losses and successfully raised GBP150 million in fresh equity, avoiding what was starting to look like a looming bankruptcy and buying more time to complete its restructuring.

The return to profit was built on network rationalisation and a seat capacity reduction in the core Flybe UK airline. This was accompanied by a significant headcount reduction which led to lower costs. Load factors were driven up by the capacity cut and lower fares, leading to higher revenues per seat and a slight increase in total revenues. Losses were also reduced at Flybe Finland, the joint venture with Finnair.

Importantly, too, Mr Hammad and the rest of the new management team seem to be bringing about a cultural change in Flybe, with a brand re-launch and his talk of 'Purple Power'.

Aegean Airlines Group losses narrow thanks to cuts at Olympic, but parent company losses grow in 1Q

29-May-2014 3:46 PM

In 1Q2014, the Aegean Airlines Group, which now includes Olympic Air, reported a reduction in its losses when compared with proforma figures for the same period last year. The acquisition of Olympic has provided only temporary respite from the strong competitive forces in the Greek market: the group's RASK fell in the quarter after growing in FY2013. Happily, CASK cuts more than offset this and hence the narrower losses.

On closer inspection, it can be seen that the parent company, Aegean Airlines, saw its losses widen as cost growth outpaced strong revenue growth. The improvement, on a proforma basis, in the consolidated group result is down to significant cuts in capacity and costs at Olympic. Nevertheless, since the group is now managed on an integrated basis, a reduction in the combined losses for the first full quarter after the acquisition is a positive sign.

With unit revenues likely to remain under pressure, the group will be looking to acquisition synergies and other cost measures within Aegean itself to ensure that profitability does not deteriorate as the year progresses.

Wizz Air: London share listing planned after three-fold profit increase for the ultra-LCC

26-May-2014 7:17 PM

The Wizz Air Group has announced its intention to float on the London Stock Exchange. CAPA suggested this was under consideration in a report in Apr-2013 and the company has been mulling it over for years. The decision had no 'whiz' about it, but now may well be a suitable point in its history for a public listing.

The IPO prospectus is not yet available, but we have updated our analysis of the available data. This shows that Wizz Air has now established a firmer platform of profitability from which to attract investors and has consolidated its position as Europe's second lowest cost carrier.

One of its biggest challenges is that Europe's lowest cost airline, Ryanair, is also Wizz Air's closest competitor. Wizz Air's recent growth and profitability suggest that this has not deterred it and it has continued to focus on its niche in Central/Eastern Europe. An IPO will strengthen Wizz Air's under-capitalised balance sheet and expand its aircraft funding options. It will also further raise its profile and should add to its already strong focus on cost efficiency.

Virgin Atlantic Airways sees more than a little red, but things were much simpler 30 years ago

22-May-2014 5:40 PM

As Virgin Atlantic Airways nears its 30th birthday in Jun-2014, the simplicity of founder Sir Richard Branson's 1984 vision could not stand in greater contrast to the complexity of today. All he had to do was to use his reputation as a record industry entrepreneur and his marketing flair to lease a 747 and have a go at British Airways. Now, CEO Craig Kreeger's in-tray includes the loss-making Little Red, the developing Delta relationship, the arrival of his first 787 in Sep-2014 and future UK airport capacity.

Top of his agenda is restoring profitability, a target Mr Kreeger set after joining the airline in Feb-2013, aiming to achieve it in two years. Virgin's 2013 annual report, filed with the UK's Companies House in Apr-2014, declared it to be confident of achieving this in 2014 after posting its fourth loss in five years.

More recently Mr Kreeger told The Daily Telegraph (17-May-2014): "The goal was to be above breakeven but, to be quite honest, given the progress we’ve made it will not be a huge amount above breakeven.” Is he having a re-think?

Airberlin: still in need of a cap that fits, although 1Q2014 operating loss narrows slightly

22-May-2014 4:30 PM

Airberlin's 1Q2014 results do not add much to the public understanding of its business. Probably the most important recent development has been confirmation of the balance sheet recapitalisation announced in Apr-2014. Without this, which relies largely on funds from 29% shareholder Etihad, airberlin would have been in dire straits.

But the fortunate reality is that Airberlin now has breathing space to focus on cutting its CASK and raising its RASK, following years of both rising (but CASK rising faster). In 1Q2014, both fell and airberlin modestly narrowed its operating loss by cutting CASK slightly more than the drop in RASK. Its Turbine cost programme is making itself felt, but the shift in Easter hurt revenues.

In another important development, airberlin has begun the fundamental restructuring announced in Apr-2014. It has a still fairly new CEO and an influential airline shareholder; this process has now introduced a newly appointed Chief Restructuring Officer and external consultants. Previous restructurings and strategic changes have failed to assure a sustainable business model, but perhaps one of them will manage it this time.

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