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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.

The airline profit cycle: what goes up must come down. Possible warning signs as Farnborough nears

2-Jul-2014 6:00 PM

After another year of record high aircraft orders in 2013, both in absolute numbers and as a percentage of the fleet at the end of the previous year, there is naturally some concern in the industry about the impact this might have on capacity discipline.

CAPA has looked at this and related concerns a number of times before, but they continue to occupy attention. IATA published its updated airline industry financial forecast in early Jun-2014 and we have now passed the half-way point of 2014. Just ahead of the Farnborough Air Show, we recap and update our analysis of the global airline profit cycle and its relationship with the capacity cycle in this report.

The airline industry is well above historical mid cycle margins and still in the upswing phase. Moreover, there are signs that the current rising trend of sector profitability is not purely cyclical, but that it may also have a structural dimension. However, what goes up must come down. Are there very early warning signs of an approaching downswing? Good & bad news. Parent Dart Group announces FY2014 profit growth & FY2015 profit warning

27-Jun-2014 5:00 PM 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. 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'.

Dubai International Airport: The world's biggest in 1Q2014, but runway works reduce full year 2014

5-Jun-2014 10:00 AM

Dubai International Airport (DXB) managed to chalk up an entire quarter in 1Q2014 as the busiest airport for international passenger traffic, edging out London Heathow International Airport (LHR), as it had threatened to do for some time.

DXB handled 18.36 million international passengers over the first three months of 2014, while LHR handled a total of 16 million passengers. Dubai had growth of 11.4%, while London Heathrow traffic grew just 0.5% for the period.

Dubai Airport’s stay at the top was short-lived however. From 01-May-2014, runway works at the airport have cut capacity by better than 20%. At present traffic and growth rates, that could reduce the airport’s total annual traffic by as much as 2 million passengers. DXB is however still on track to handle more than 70 million passengers in 2014.

Planned new capacity will allow continued high levels of growth; but southeast England is meanwhile unlikely to achieve even one additional runway within the next 10 years.

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.

For Doha’s new Hamad International Airport the big test comes on 27-May-2014

27-May-2014 1:18 PM

Doha’s new Hamad International Airport (HIA) opened for scheduled traffic at the end of Apr-2014, with progressively 15 airlines transferring operations to the new facility.

The much delayed USD15.5 billion airport takes over from the existing Doha International Airport (DOH) as the nation's gateway, as all remaining airlines, including national carrier Qatar Airways, transfer across to it on 27-May-2014.

HIA brings a much-needed addition of capacity for Qatar Airways' hub operations, as well as for the airline's oneworld partners.

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