Profitability among European carriers improved again in the second quarter with Lufthansa and Swiss leading the way
As Europe's strong economic performance continued to drive demand, most European carriers reported improved results for the second quarter compared to the same period last year. As the table shows, several carriers posted strong growth, although Alitalia, Austrian, British Airways, Iberia and SAS reported single-digit decreases.
The picture on profits was rosy, with almost universal rises at the operating level resulting in a margin for this selected group of nearly 9%.
One of the strongest results came from rejuvenated Swiss. It posted second quarter revenues of $995 million, reflecting a 16.1% increase over the same period last year. Swiss attributed the improvement to ongoing strict cost management and synergies gained through the airline's co-operation with parent Lufthansa. Swiss was fully integrated into Lufthansa on 1 July.
Strong demand
Strong passenger and cargo demand enabled Swiss to add capacity on European and high-demand long-haul routes and still boost load factors. "The result in the second quarter has firmly exceeded our expectations. Swiss remains firmly on course in terms of our requisite EBIT margin of 5-8% over the multi-year economic cycle," says the airline.
The better-than-expected results for Swiss, plus Lufthansa's own "record second quarter results", have led the German carrier's board to raise its annual profit forecast. Lufthansa's second quarter figures were driven by good long-haul yields in the passenger division. The sale of its 50% stake in Thomas Cook, to the tune of E503 million ($694.5 million), and a E71 million share buyback by WAM Acquisition, parent of IT provider Amadeus, also strengthened the airline's balance sheet.
Lufthansa's board anticipates a full-year operating result significantly above its earlier E1 billion forecast. This includes operating results at Swiss, which Lufthansa says are "developing better than previously anticipated".
Lufthansa's Star Alliance partner Aegean Airlines posted an impressive 20% improvement on 2006 revenues in the second quarter as the airline continued to capitalise on the weakened market position of Greek national carrier Olympic by increasing penetration of domestic and international markets.
Increased capacity, an expanded network and higher-than-expected business demand enabled Aegean to post a $9 million profit. Analysts at Citigroup expect Aegean to achieve annual revenue growth of 19% over the next four years as the airline benefits from substantial growth in the Greek market, a new fleet and expanded partnerships with other Star carriers. A planned initial public offering will further strengthen its balance sheet.
Solid base
Despite a modest $16 million net profit in the second quarter, Air Berlin's figures disappointed analysts. "Although we did not meet all expectations, we still created a solid base for further growth," says Joachim Hunold, chief executive. Hunold partly blamed the weather for falling demand, particularly a hot spell in Germany and continuous rain in the Mediterranean, which deterred many tourists.
Ulf Hüttmeyer, Air Berlin's chief financial officer, attributed some of the carrier's disappointing performance to the lengthy approval process associated with Air Berlin's takeover of leisure carrier LTU. Being unable to reap the synergies connected with the acquisition cost Air Berlin an estimated E30 million. The carrier says the time-consuming assessment of the LTU takeover has "rendered obsolete" its revenue and earnings forecasts for 2007.
Ryanair continues to perform strongly, despite flat yields. The carrier attributed record quarter profits to a strong growth in ancillary revenues. These grew 53% in the quarter to E117.1 million, representing 17% of total revenues, a figure the airline expects to rise to 20% over the next three years. However, Ryanair chief executive, Michael O'Leary says the airline's outlook remains cautious for the fiscal year due to the softness of traffic and yields.
Elsewhere, SAS Group attributed its disappointing results to strike action, which hurt second quarter earnings by KR300 million ($4.4 million). The group is working on a new model for co-operation with trade unions and further streamlining to bring its results back on track.
Source: Airline Business
