Once again high fuel prices tempered optimism among European carriers despite robust early summer results.
The big three – Air France/KLM, British Airways and Lufthansa – all reported healthy revenue figures and outlooks, as did easyJet. However, Ryanair, while reporting a 35% in revenues for the June quarter, says it is “cautious” for the remainder of the year, and Iberia came in below analyst expectations.
ABN-AMRO financial analyst Andrew Lobbenberg says that to some extent this is the familiar story of those major carriers with a strong long-haul presence outperforming those that are more reliant on short-haul traffic. For low-cost carriers, analysts see a steady picture emerging.
The greatest underlying dynamic in play at the moment, however, is fuel. Chris Avery, London-based analyst at JP Morgan, warns that the increased revenues reported by the major carriers are almost wholly down to the ability of carriers to pass on their extra costs in the form of fuel surcharges. Passengers have in the main accepted these so far. However, the size of the surcharges has been rising in both absolute terms and in relation to the headline ticket price. “It is starting to become a material number,” warns Avery.
BA chairman Martin Broughton, reporting a 65% rise in pre-tax profits for the June quarter to £124 million ($225 million), upped full year revenue estimates from a rise of 4-5% to 5.5-6.5%. However, BA also increased its estimate of fuel costs by an extra £75 million, bringing it to £525 million for the year. Lufthansa, meanwhile, lifted its full-year operating forecast from €383 million ($475 million) to over €400 million, again on the back of a strong set of interim results, with operating profits for the first half-year up to €253 million, well up on last year’s figure of €33 million.
EasyJet also upgraded its profit forecast, saying that full-year pre-tax profits will now be in line with last year, after initially projecting that they would come in slightly below. Analysts point out, however, that flat profits would signal a decline in margins at the fast-growing carrier.
Ryanair reported profits up by a fifth in the June quarter to €64 million as yields improved and revenues climbed to €405 million. However, Iberia’s half-year net earnings have more than halved to €29 million.
Shortly after announcing its June quarter results, BA was hit by a wildcat strike by ground staff, who walked out in sympathy with striking workers at BA’s caterer Gate Gourmet. Analysts estimate that this will result in a bill for BA of around £20-40 million.
COLIN BAKER/LONDON
Source: Airline Business
