There are caveats. The US results are not quite final, since TWA had yet to report for its fourth quarter at press time. Elsewhere, very few major airlines have completed their full-year financial statements. The interims must be treated with caution, since the European winter is traditionally slow and the severe weakening of Asian markets will affect the Asia-Pacific carriers' third and fourth quarters.
Last year, the US and European carriers took advantage of the boom in demand caused by economic prosperity, and all airlines benefited from low fuel prices. Often demand was so strong that yields could be raised, despite competition. However, in Asia-Pacific the results of the economic crisis are already evident, and matters will clearly be much worse by the time full year-end data are available.
Most airlines are reaping the rewards of the hard restructuring decisions they took in the early 1990s, although the sensible ones are continuing the pressure to reduce costs. A 5 per cent return represents a major step forward, but at the top of the economic cycle most financial investors would still be disappointed.
The US majors made significant profits in 1997 except for TWA, which widened its net loss to $91.3 million in the first nine months. US Airways and Delta joined American parent AMR Corp and United parent UAL Corp in the $900 million net profits league. US Airways achieved the highest net margin at 11.3 per cent, but this was distorted by one-off gains.
Northwest's net rose less spectacularly to $583 million, while its new partner Continental achieved a record $385 million. These two carriers expect their new alliance to produce significant increases in profitability.
Federal Express turned in a $361 million net profit; it benefited from the UPS strike, and better international returns. Southwest boosted its net profit by 50 per cent to $317 million, with the second highest net margin of 8.3 per cent. Both America West and Alaska Air achieved significant profit improvement.
As always, extraordinary items affected the results of several US majors. AMR's net appeared to decline, but its 1996 profit was artificially high due to the Sabre public offering. Excluding special items, AMR's 1997 net profit rose 14 per cent to $972 million. Delta's 1996 result included $829 million in restructuring costs. UAL's 1997 results include a $378 million gain from the Galileo flotation. US Airways made $180 million on this transaction, while also receiving a $467 million tax credit.
Air Canada almost doubled its nine-month net profit to $241.9 million, a net margin of 8 per cent, while Canadian Airlines moved into the black over the same period.
In Europe, the interim results show a general improvement. Air France made almost $300 million in the first half as it boosted its Charles de Gaulle hub and increased yields. Alitalia turned from a large loss into a $98 million net profit and Austrian Airlines moved into the black, while Swissair's parent achieved a major turnaround despite continuing losses at Sabena. Lufthansa, KLM and Finnair registered significant profit gains, although Lufthansa gained nearly $100 million from currency effects and KLM's result includes $207 million from selling Northwest shares. British Airways fell back due to the strong pound and the $203 million cost of its cabin-crew strike.
The Asia-Pacific picture is mixed. Japan Airlines more than doubled its first-half operating income as revenue rose 5.5 per cent in yen terms, while costs rose only 2 per cent. Singapore Airlines benefited from higher yields and healthier cargo demand. There were profit improvements at China Airlines, China Southern, Emirates, Garuda, Indian Airlines, and Qantas. Korean Air reduced its first-half loss, but the economic crisis hit Korea hard in the second half and the full-year prognosis is poor.
Elsewhere in Asia, the picture is less rosy. Pakistan International Airlines slumped to a $120 million loss. Cathay Pacific, Air New Zealand, Japan Air System, Malaysia Airlines and Thai Airways all saw their profits reduced substantially, and this was before the worst of the economic crisis hit.
Traffic was generally buoyant last year, with revenue passenger km rising by 4.7 per cent for the US majors and 7.5 per cent for our sample of non-US carriers. In the US, load factors rose by 1 percentage point to 70.8 per cent. Continental expanded aggressively, increasing its RPKs by 14.3 per cent and boosting its load factors by 2.8 points. US Airways also improved its load factors significantly, but TWA continued to retrench. Load factors at Southwest and America West declined, but in 1996 these carriers had benefited from fare sales and the abolition of the ticket tax.
The Association of European Airlines members achieved a record 72.4 per cent load factor - up 2 points - as international scheduled RPKs grew by 9.7 per cent. Sabena's RPKs grew by 25.1 per cent, as it boosted its Brussels hub, while Swissair, KLM, Turkish Airlines, Lufthansa and TAP recorded double-digit RPK growth.
In Asia-Pacific, Cathay Pacific's RPKs fell 3.0 per cent as passenger numbers slumped 8.8 per cent. Cathay's troubles began with the 30 June handover of political control to China, after which regional tourist traffic evaporated. Growth rates for the other Asian carriers were well below those of recent years, and in most cases there was a decline in the second half as the currency crisis took effect.
Source: Airline Business
