European carriers were thankful to see their financial performance stabilise in the third quarter, while Asian carriers are rapidly putting the SARS-inflicted first half behind them, report Colin Baker in London and Nick Ionides in Singapore.
While Asian carriers continue to report a rapid bounce back from the SARS crisis, the recovery in Europe is proving more drawn out.
The key word in most European airline interim reports was "stabilisation". After a torrid first half, there were signs of improvement in the September quarter, in what should be the peak season. The leading European flag carriers, together with Ryanair, posted a collective 6.0% operating margin, down from 8.1% a year ago.
Ryanair was once again in a league of its own, but among the rest British Airways and its oneworld partner Iberia came close to regaining the double-digit margins of last year.
BAis typical in reporting that while revenues look more steady, the pick up in the US economy had yet to translate into a rise in transatlantic bookings. "We currently feel that the market has bottomed out with a few green shoots but not a recovery in forward bookings," says marketing director Martin George, quoting a 20%decline in yields in club class on the North Atlantic this summer compared with the peak in 2000.
The intra-European market, meanwhile, continues to see yields under pressure as the low-cost and mainline sectors battle it out. "We feel that this market has fundamentally changed and will not come back," says George.
Indeed, even easyJet and Ryanair saw operating margins dip in the September quarter, though admittedly the Irish carrier's remained above 40%.
Less convincing were results from easyJet for its full year to September, with operating margins down from 12.6% to 5.2%. The low-cost carrier blames the impact of the Iraq war at the start of this year for much of the damage, but is sounding bullish again going into 2004.
Most airlines have accepted that yield pressure on short-haul flights is here to stay, and Air France is just the latest to announce a review of its European product.
The weakness of the Eurozone economy compared with its main trading partners was a complaint of a number of carriers, notably Lufthansa, which reported a curb on the traditional German "wanderlust".
Looking on the bright side, cost cutting continued to feed through to the bottom line. KLM, lining up for its merger with Air France, saw a 13% drop in operating expenses, a result of cost-cutting and capacity cuts. President Leo van Wijk says: "Against the background of a difficult operating environment, we continued to focus on our costs, and were successful in limiting the effects of lower revenues on our operating income."
The bad news, however, is that labour unrest is also beginning to affect the bottom line. BA took a massive £40 million ($67 million) hit due to unofficial industrial action by ground staff in July, while the figures at Austrian Airlines were hit by pilot strikes.
Demand returns
Meanwhile, Asia's major carriers are reporting a strong financial turnaround following the containment of the SARS outbreak, and are again positive about the near-term outlook.
All of the region's airlines were badly affected by the SARS-induced downturn between March and July, but since then passenger demand has been quick to return and restructuring efforts are paying off.
Singapore Airlines (SIA) posted a strong set of results for the September quarter, although the gains were not enough to keep it in the black for its first six-months.
After reporting an unprecedented S$377 million ($220 million) operating loss for the first quarter, SIA was back with a S$315 million profit in the second - actually marking an improvement on last year. "Barring any unfavourable events, passenger demand is expected to remain buoyant in the next two quarters, especially during the traditional year-end travel peak," SIA said in its earnings report.
It was a similar story at Malaysia Airlines, which also reported a second-quarter net profit, of 101 million ringgit ($27 million), although not enough to overcome losses in the first. But MAS is upbeat about the outlook for both passenger and cargo.
Japan's All Nippon Airways (ANA) is another carrier that has reported a return to financial strength, largely on the back of restructuring efforts. Despite a revenue drop in its first quarter, a better performance in the second allowed it to turn a net profit over the half after a loss last year.
"This is proof that we are on track and that despite one of the worst years in aviation history, and a very difficult operating environment at home, our restructuring efforts and our determination to reduce costs are paying off," says president and chief executive officer Yoji Ohashi.
Two other Asian carriers that were particularly hard hit during the SARS outbreak, Taiwan's China Airlines (CAL) and EVA Air, are also bullish about the period ahead.
CAL posted a profit for the September quarter of NT$1.3 billion ($38 million), offsetting first-half losses and leaving it with an after-tax gain of around NT$400 million for the first nine months.
Home-based rival EVA remained in the red for the nine-month period but the loss was smaller than expected and it managed to return to profitability in the third quarter.
Source: Airline Business
