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Wizz Air's first results post-IPO: FY2015 underlying net profit up 67%, but slowing in FY2016

28-May-2015 2:37 PM

Reporting its first financial results since its Feb-2015 IPO, Wizz Air announced that its underlying net profit jumped by two thirds in FY2015. In another year of double digit capacity and revenue growth, it managed to grow its unit revenue while simultaneously lowering its unit cost.

Ranked by operating profit margin for the 12M period to Mar-2015, Wizz Air is equal second with easyJet and behind only Ryanair in the list of Europe's most profitable airlines. The IPO has also left it with a robust balance sheet, a useful attribute in the volatile airline industry.

Wizz Air's guidance for FY2015 implies much slower profit growth of less than 20%. Lower fuel prices and a competitive market backdrop look likely to put unit revenue under pressure. Moreover, further unit cost reduction is harder when costs are already very low. Nevertheless, Wizz Air's low cost base and impressive ancillary revenue performance, together with strong market share in Central and Eastern Europe, position it to remain one of Europe's more successful airlines.

Ryanair: Michael O'Leary's new cuddly approach is rewarded with 66% profit growth

27-May-2015 3:00 PM

Ryanair's FY2015 net profit jumped 66%, a return to profit growth after a rare dip in FY2014. It was helped by lower fuel prices, but, unlike many other European airlines, Ryanair would still have reported improved FY and 4Q results with no change in its average fuel cost per seat versus last year.

Average fares barely changed (up 1%), but load factor jumped to 88%, from 83% in FY2014, driving up revenue per seat, even in Q4 when average fares fell sharply. Ryanair's new customer service initiatives and improved airport network may not yet be attracting consistently higher fares, but they are persuading more passengers onto its aircraft. What's more, revenue per seat growth outpaced the resultant increase in cost per seat.

Ryanair is being cautious about fares into FY2016, but still expects another 10% growth in profit. Moreover, the combination of product and service improvements and a wide discount to competitor fares should benefit pricing in the longer term, even as further load factor gains become less dramatic.

Pegasus Airlines and Turkish Airlines: improved 1Q2015 margins thanks to lower fuel prices

21-May-2015 4:11 PM

Both of Turkey's two largest airlines reported improved results and operating margins in 1Q2015 against the same period a year earlier. Both remained loss-making at the operating level in this seasonally weak quarter, although Turkish recorded a net profit as a result of foreign exchange gains on the revaluation of debt.

As is often the case, currency movements had a significant impact on the results of both airlines. For Pegasus, unit revenue reported in its functional currency, EUR, benefited from that currency's weakening against both TRY and USD.

For Turkish Airlines, unit revenue in its functional currency, USD, was adversely affected by the strengthening of that currency against EUR and TRY, which account for the majority of its revenue. Overall, both managed to increase their margins mainly as a result of lower fuel prices.

Airberlin: narrower 1Q loss helped by lower fuel prices, revenue growth as 2Q below "expectations"

18-May-2015 3:40 PM

Airberlin narrowed its operating loss in 1Q2015 compared with 1Q2014, by growing unit revenue faster than unit cost, which was almost flat year on year. Unit revenue appears to be benefiting from network changes and a new revenue management system (and also from currency movements). However, the relatively contained unit cost performance owed much to lower fuel prices, without which the operating loss would have increased. Moreover, the airline said that seasonal effects such as Easter also had a positive impact on the result.

Airberlin still expects that yield improvement will lead to a "noticeable" improvement in earnings in 2015 after heavy losses in 2014. However, it says that "current foreseeable business development in 2Q has so far not fulfilled expectations". It continues to face significant challenges in its turnaround.

EasyJet: back in profit for the winter half, but the unit revenue outlook is weakening

13-May-2015 3:50 PM

easyJet's 1H2015 results statement made for interesting reading. On the one hand, it reported its first positive pre-tax profit figure for the winter half in more than a decade (effectively due to lower fuel costs).

On the other hand, easyJet's outlook statement predicted a fall in 2H revenue per seat at constant currency, in contrast with the increase achieved in 1H. This is partly because of faster capacity growth, both by easyJet and competitors in its markets (to use easyJet's own words, "inefficient capacity is likely to stay in the market longer"), but also reflects the impact of lower fuel prices on air fares.

EasyJet is still set to record double digit growth in FY2015 pre-tax profit and to remain one of Europe's most profitable airlines. Nevertheless, after a very successful five year period between FY2009 and FY2014, when its pre-tax profit increased by a factor of eleven, it is perhaps not surprising that it is now in a more sustainable growth phase.

Finnair: 1Q loss narrows as its strategy review places a focus on customer and operations

9-May-2015 7:15 PM

Finnair narrowed its operational loss in the seasonally weak 1Q2015. After capacity cuts and restructuring in 2014, it has returned to modest capacity growth. Revenue was stable as growth in passenger and ancillary revenue was offset by falling cargo and travel services sales. The narrower loss was thanks to decreased costs, with lower fuel prices playing a significant part. Ex fuel unit costs were up slightly, even after stripping out currency movements.

New labour agreements reached last year and the delivery in 2H2015 of Finnair's first four A350 aircraft should provide cost benefits in the future. In addition, Finnair has announced a new strategic focus placing the "customer experience" and "world-class operations" at its heart, presumably hoping this will bolster unit revenue. Finnair has also broadly reiterated its medium to long term financial goals, but remains a long way from achieving them.

One of Finnair's strategic focus areas is Northeast Asia, where it retains an ambitious growth target, but this does not square with last year's capacity cut and this year's slow growth in Asia. The A350 is expected to reinvigorate its Asia strategy.

IAG, Lufthansa & Air France-KLM: don't risk RASK. Lessons from 1Q2015 unit revenue & capacity growth

8-May-2015 8:28 PM

The 1Q2015 financial results of Europe's Big Three legacy airline groups again highlight their diverging pathways. Although all three recorded improved results versus last year, IAG underlined its superiority by posting a positive operating profit in what is seasonally the weakest quarter.

CAPA analysis often highlights the importance of cost discipline and much of IAG's success relative to Air France-KLM and Lufthansa is due to the head start it gave itself in pushing restructuring, particularly of labour costs. This remains crucial.

However, the focus of this report is to analyse the 1Q2015 unit revenue (RASK) performance of the Big Three and the relationship between RASK growth and ASK growth. Our analysis confirms that RASK performs better under conditions of tight capacity discipline, but also highlights some crucial differences between the Big Three and between their major route regions.

IAG's first ever 1Q operating profit marks further progress towards its long term targets

4-May-2015 7:00 PM

While IAG's major competitors are confronted with precarious labour and financial situations, the Group continues its strong march towards profitability. Its 1Q2015 results provided a first ever positive operating profit in the seasonally weak 1Q. Currency movements (mainly the strong USD) inflated both revenue and costs, with the net impact only very mildly negative. The swing to an operating profit from a loss in 1Q2014 was driven by unit revenues rising more rapidly than unit costs (or, excluding exchange rate effects, unit revenue falling less rapidly than unit costs).

At the individual airline level, British Airways returned to 1Q operating profit for the first time since before the global financial crisis and both Iberia and Vueling narrowed their margins of loss. What's more, in spite of Vueling's teething problems at its new Rome base, its rolling 12 month return on invested capital is above the group's 2016 target of 12%.

IAG as a whole and its other two subsidiaries remain short of this hurdle, but the group has reiterated its 2015 operating profit target and is confident it can reach its 2016 goals.

Norwegian Air Shuttle narrows its 1Q2015 loss thanks to lower fuel, but it's still a heavy loss

1-May-2015 1:42 PM

Norwegian narrowed its losses in 1Q2015, the first quarter in over a year when its adjusted operating result improved on a year-on-year basis. This was achieved as growth in unit revenue was higher than growth in unit costs although the loss was still its second highest first quarter loss.

Moreover, the containment of unit costs was entirely due to lower fuel prices, whereas non-fuel unit costs increased. Norwegian can point to costs related to a pilot strike as contributing to this, and adverse currency movements also hurt its result, but it does underline the need for cost efficiency improvements.

Meanwhile, Norwegian is still awaiting a definitive decision regarding its Ireland-registered subsidiary Norwegian Air International's US foreign carrier permit application. Approval would be positive for labour productivity on its long haul network. As the US DOT continues to drag its feet, Norwegian may soon be forced to consider alternative plans.

Aer Lingus holds 1Q2015 operating loss at last year's level, but FY outlook should be positive

30-Apr-2015 1:15 AM

As is usually the case, Aer Lingus reported another first quarter loss in 1Q2015. The seasonally weakest quarter is never a good guide to the rest of the year, but the good news for Aer Lingus is that its margin of loss narrowed. This was driven by healthy growth in unit revenues, which outpaced the growth in unit costs.

Nevertheless, unit costs remain stubbornly on an upward path. To a large extent, this is because Aer Lingus has been adding costs associated with its long haul expansion ahead of the stronger summer season. The growth in its North Atlantic network has been well received in the market, with strong unit revenues in spite of double-digit capacity growth.

However, the company is focusing on initiatives to reduce the level of fixed cost in the winter and has indicated that it plans to extend its CORE restructuring programme. This is to be welcomed.

Pegasus Airlines & Turkish Airlines: Turkey's aviation booms, Istanbul Sabiha Gokcen Airport gains

10-Apr-2015 3:39 PM

Turkey is home to two of Europe's fastest growing airlines. Turkish Airlines increased ASKs by 16% in 2014 and LCC Pegasus Airlines grew by 20%. From a standing start as a scheduled carrier ten years ago, Pegasus' share of seats in Turkey reached 19% in 2014. Turkish remained the country's largest airline, but its market share of just under 54% in 2014 was unchanged from 2010. The main battlegrounds between the two are on international routes to/from Europe and in the domestic market, where Pegasus has grown particularly rapidly.

Until 2013, Turkish Airlines more or less left Pegasus alone at its home base of Istanbul Sabiha Gokcen, where the LCC is the number one airline. Since then, however, Turkish has outgrown its rival at Istanbul's number two airport. Turkish now overlaps on city pairs that cover 97% of Pegasus seat capacity from Sabiha Gokcen.

It is no coincidence that Pegasus' unit revenue and operating profit margin have dipped since this onslaught. Neither has Turkish emerged unscathed. Both plan further rapid growth this year, but appear to be holding a truce in the price war.

Airberlin: another restructuring from another CEO after another loss in 2014

1-Apr-2015 6:20 PM

According to airberlin's preliminary results, it narrowed its underlying operating loss (before restructuring and one-off costs) for 2014. It made progress with cost restructuring, but missed its planned turnaround because unit revenues were weak. After restructuring and one-offs, its net loss will be worse than in 2013.

With only one year of (very small) net profit since 2007, it seems that loss-making can be a hard habit to break. More recent data show an improving unit revenue trend and airberlin expects 2015 to be much better than last year.

Nevertheless, this cannot hide the enormity of the challenge facing new CEO Stefan Pichler (appointed 2-Feb-2015) in restoring airberlin to profit. The fourth CEO in as many years has launched another redesign of the company's business model, aiming for a positive result in 2016.

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Financial Results

This content is exclusively for CAPA Membership Subscribers

CAPA Membership gives you the latest aviation news and alerts, access to CAPA articles, reports, and our leading aviation data with optional premium add-ons.

This content is exclusively for CAPA Membership Subscribers

CAPA Membership gives you the latest aviation news and alerts, access to CAPA articles, reports, and our leading aviation data with optional premium add-ons.

This content is exclusively for CAPA Membership Subscribers

CAPA Membership gives you the latest aviation news and alerts, access to CAPA articles, reports, and our leading aviation data with optional premium add-ons.