Rising fuel costs dominate airline bottom lines

A glance through CAPA’s alerts and analysis for the week showed a recurring and dominant theme as airlines report quarterly results – rising fuel costs.

To use a sample from CAPA's reports: Singapore Airlines recorded improved fiscal year profits but profitability has dropped over the past few months as a result of rising fuel prices and lower load factors.

SIA warns the “twin challenges of near term weakness in load factors and high fuel prices will adversely affect operating performance of airlines”.

See full article: High fuel prices and weak load factors erode SIA's profits.

Thai Airways is starting to feel the pinch of a string of fuel cost increases and weaker load factors. The carrier has reported a 24% drop in profit before foreign currency exchange losses and tax for 1Q2011 to THB4.112 billion (USD136 million).

Read the full report: Thai's profits drop in 1Q2011 as oil prices and external factors affect demand

South Korea’s two main carriers Korean Air (KAL) and Asiana were in a similar boat and while remaining in the black have seen operating profits slip so far this year, unable to completely offset rising oil prices.

KAL posted a consolidated operating profit of KRW163 billion (USD152 million) for 1Q2011, a 41% drop compared with 1Q2010 as fuel costs increased by 30%. While Asiana reported its operating profit dropped 30% to KRW98 billion as fuel costs increased 23%.

Read the report: Rising fuel costs start to eat away at profits at Asiana and KAL

In South America, fuel prices have led to a reduction in Gol’s operating margin and forced the Brazilian low-cost carrier to significantly lower its guidance for the remainder of 2011 as it has not been able to offset higher fuel costs by increasing fares.

Full report: Gol's operating margin drops as Brazil's carriers refuse to raise fares.

Across the Atlantic, easyJet reported a pre-tax loss of GBP153 million in the first half amid “tough” trading conditions. CEO Carolyn McCall cited "sharply rising fuel costs combined with cautious behaviour by consumers" and an adverse effect from taxes on passengers as defining factors. easyJet plans to freeze fleet growth to maintain control of high fuel costs and taxes.

Refer to the article: easyJet first half losses double on fuel, taxes

The seemingly bullet-proof Emirates was the exception. It overcame a challenging final quarter, which included political instability in its neighbourhood and skyrocketing oil prices, to post a record profit for FY2010/11.

The Dubai-based airline group turned a net profit of AED5.9 billion (USD1.6 billion) for the year ended 31-Mar-2011. Operating costs were up 23% to AED48.9 billion, driven by a 41% increase in fuel costs to AED16.8 billion as the price of fuel was up 27% compared to the previous year.

Full article: Emirates records record profit for FY2010-11 despite challenging 4Q

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