Lufthansa and Air France-KLM are reportedly looking to limit the costs they will have to pay for carbon emission permits under the EU’s climate change programme, to be launched in 2012 (Bloomberg, 12-Oct-2009). Lufthansa reportedly plans to purchase futures contracts to limit costs by EUR250 million p/a. Lufthansa’s emissions are expected to be around 40% higher than the permitted levels, potentially forcing it to spend between EUR200 million and EUR300 million p/a on permits. Meanwhile, Air France plans to use financial contracts to cap permit costs at approximately EUR100 million p/a.
Lufthansa and Air France-KLM looking to limit costs for carbon emission permits
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European airlines: 1H2016 results show a widening gap between the haves and have-nots
The last of Europe's leading listed airline groups reported 1H2016 results on 19-Sep-2016. This now allows analysis of the aggregate trends for the 15 largest European airline groups listed on the stock market that publicly report financial results for the first six months of the calendar year. These groups account for 53% of ASKs flown to/from/within Europe by all airlines and 71% of ASKs flown by European airlines (week of 19-Sep-2016, source: OAG).
Collectively, these 15 groups enjoyed an improvement in operating margin in 1H2016 versus 1H2015. This was achieved in spite of heavy downward pressure on unit revenue – thanks largely to lower fuel prices, which allowed them to cut unit costs more rapidly. However, there was a wider range of levels of profitability in the individual results compared with last year.
Moreover, in margin terms, there was a trend towards the strong getting stronger and the weak getting weaker. Further, there has been a number of profit warnings in the sector – particularly since the UK's Brexit referendum. This may mean that further improvements in the aggregate results of Europe's listed airline sector will be harder to achieve in 2017.
Brexit follow-up Part 2: European airlines feel yield pressure; long-term impact unknowable
Part 1 of CAPA's Brexit follow-up report assessed the ASK exposure of UK and non-UK airlines to market segments where existing traffic rights could potentially change once the UK finally leaves the European Union. This second part reviews recent comments by leading European-listed airlines on how they see the impact of Brexit, both in the short term and in the longer term. Most of them acknowledge that there are considerable uncertainties, while simultaneously insisting that they will not be significantly affected in the long run.
There have been two initial impacts on airlines. First, Brexit has added to economic uncertainty, thereby muting demand and lowering yields. The magnitude and duration of this impact is unpredictable. Secondly, the consequent weakening of the GBP has made outbound international travel from the UK more expensive and less appealing, and lowered the value of GBP revenue earned by airlines.
The longer term impact will depend on whatever new traffic rights regime is negotiated between the UK and the EU. As a number of the airlines have acknowledged, this remains unknown and is, indeed, unknowable until the UK formally triggers its exit from the EU and then completes its two-year exit negotiations.