All Nippon Airways (ANA) and Japan Air Systems (JAS) have nearly tripled operating profits showed the strongest gains. A year ago they had managed little better than breakeven. With the latest round of figures, for the six months to September, they were close to joining Japan Airlines (JAL) at the 5% mark. Even so, only JAS managed to take the gain through to the bottom line - turning around a small loss a year ago. JAL and ANA, still struggling with restructuring, saw their net result slump.
The airlines welcomed the first signs of returning consumer confidence in Japan and traffic growth of around 6% of over the half seems positive. But that was clearly at the expense of yields, which were down by at least 7%. Especially on domestic routes, fare deregulation and two low-cost start-ups have brought ticket prices down and stimulated travel.
Neither ANA nor JAL managed to turn increased traffic into revenues growth. The improved operating profits came through lower costs rather than any dramatic recovery in markets. JAL's revenues were actually down by 2.6%, while ANA's barely moved. JAS managed to grow revenues, but it too is following with heavy cost cuts, planning to axe 1,000 jobs from its 5,500-strong workforce over the next four years. It also wants a 12% cut in flight crew pay over the next two years.
Much of the immediate gains on cost, however, could be the differing impact of depreciation rules that took effect this year. Tax laws lengthened by 4 years the depreciation period for aircraft flown on domestic routes and by 5 years for aircraft on overseas routes. They also require corporations to use straight line depreciation.
These changes alone account for close to half of ANA's improved result at operating level. Lower depreciation means higher taxes for ANA and JAL, helping to explain why net profits have fallen.
These variables makes comparison with last year difficult, but it is encouraging that for the first time in years all three carriers show operating and net profits.
Singapore Airlines (SIA), also reporting for the first half, produced a more convincing recovery, with traffic growth back on course and revenues up strongly on the back of a 3.7% recovery in passenger yields. Amid these upbeat figures, however, SIA cautions that recovery is "fragile" in Asia markets and that business traffic is only gradually returning.
Europe waits for good timesKLM and British Airways' latest results shows just how difficult the market has become. BA's two-year earnings slide, hurt by continuingly weak yields on transatlantic routes, as well as low cost competition in Europe, is predicted by many to result in the airline's first annual loss since privatisation. KLM, too, is estimated to be running an underlying loss.
Andrew Light at SalomonSmithBarney believes KLM, like BA, will benefit more than most in Europe from better trading conditions next year however. KLM suffered from heavy exposure to the Asian and transatlantic markets, both of which are expected to recover substantially next year. KLM is also set enjoy rising yields in its large cargo business while strong economic growth in Benelux countries, BA's de-emphasising of connecting intra-European traffic and lower fuel prices for this predominantly long-haul carrier will also help.
Source: Airline Business
