European and Asian carriers results for the July-September quarter show the benefit of cost cuts, reports Colin Baker in London and Nicholas Ionides in Singapore
European and Asian carriers continue to outperform their North American cousins, showing marked improvements on what was admittedly an extremely poor 2001.
Although European airline results for the September quarter showed signs that the cutbacks since the US terrorist attacks are bearing some fruit, clear signs of a recovery remain elusive.
On the plus side, Lufthansa continued its recovery from a disastrous 2001. After the first nine months the group has already surpassed its forecast operating profit for the entire year, chalking up a figure of €790 million ($791 million), compared to a predicted €500 million.
However, 50%-owned travel group Thomas Cook continues to be a problem, and chairman Jurgen Weber warned of uncertainties ahead, including large pay claims from the unions.
Another possible threat is the rapidly increased presence of the low-cost sector in Germany - something that British Airways has already had to learn to live with in the UK. BA also showed strong results for the quarter as its 'Future size and shape' restructuring programme increasingly feeds through to the bottom line.
Air France continues to be one of the stronger performers, despite the estimated €55 million cost of a pilot strike earlier in the year. The airline has now reached a new agreement with its pilots. "Air France now believes that it has a contractual framework which will stabilise labour relations for the next few years," reports president Jean Cyril Spinetta.
A similar story of survival in a tough climate can be seen at other European carriers. SAS saw a strong improvement on poor 2001 figures, although it notes that the weakness of the IT-dominated Scandinavian economy remains a concern. KLM expects to report a positive operating figure for the full year on the back of cost savings.
As ever, there was a very different story in the low-cost sector, where Ryanair continued to beat analyst expectations. Average fares were up 1% despite record load factors. For the first half, the carrier showed a 32% net margin, although even financial director Howard Millar warns that this is not sustainable and likely to fall back to around the 25% level in future.
Asian health
Meanwhile, Asia's airlines are continuing to report healthy financial figures, much of it on the back of strong cargo demand.
Singapore Airlines (SIA) reported a near five-fold increase in net profit for its first half year to September. It reports that the positive result was largely due to a stronger performance from its cargo division and a sizeable tax write-back.
The result came despite the fact that operating profit was down for SIA's mainline passenger operation as well as for some subsidiaries. Cargo operations turned profitable from a loss in the same period last year.
Malaysia Airlines (MAS) also benefited from stronger cargo demand and reported its first quarterly profit in three years for the September quarter, while significantly reducing half-year losses.
In Korea, both Korean Air and Asiana Airlines reported solid returns to profitability for the nine months ended September on the back of improving operating conditions and lower costs.
In China, China Eastern Airlines reported a near five-fold increase in net profit for the nine months ended September as it also benefited from stronger demand and lower costs.
In Taiwan, China Airlines (CAL) raised pre-tax profit forecasts for the full year by 57% on the back of a booming cargo business and lower interest rates. Rival EVA Air also sharply increased its 2002 forecast after seeing a surge in cargo traffic. Its pre-tax profits for 2002 are now expected to be 37% higher than previously anticipated.
The region's carriers are for the most part remaining cautious, however. SIA said in releasing its first-half earnings that "the short-term outlook for the airline and tourism business is clouded" by the 12 October terrorist bombings in Bali and the threat of war in the Middle East.
Cargo revenue growth should be "satisfactory", it said, although jet fuel prices are expected to remain high. "These factors, together with the growing uncertainty in the global economy, means that the second half will be more challenging than the first."Asian and European airlines certainly face challenges, and much uncertainty, in 2003, but are at least showing the benefits of cost-cutting that may stand them in good stead for an eventual upturn.
Source: Airline Business
