Despite the surge in fuel prices, European and Asian carriers reported a big improvement in their second-quarter financial results.
European and Asian airlines continued to put the traumas of 2003 behind them as they posted big improvements in their second-quarter results. With short-haul yields still under pressure, an improvement in long-haul performance and cost-cutting are driving better financial performances.
The June quarter provided a landmark, with Air France-KLM reporting as a joint company for the first time since their merger earlier this year. The combined group showed an operating profit of $156 million with a 3.5% margin, with pre-tax profits at $115 million compared with break-even a year ago.
"In a context where the sharp increase in oil prices poses a new challenge for our industry in spite of a global recovery, we have posted good results thanks notably to the immediate implementation of the necessary measures to obtain synergies," says the group's president, Jean-Cyril Spinetta.
British Airways continued to be Europe's star performer, with an operating margin of 7.8%, not too far off its heralded target of 10%. The carrier did experience operational difficulties in August which forced it to cancel flights and ultimately trim its winter schedule by a couple of percentage points. It still expects revenues to rise by 2-3% in the current 2004-5 financial year to March.
Lufthansa also saw a much improved quarter, managing to double operating profits. The group expects to post a "clearly positive" net result and is targeting an operating profit of €300 million ($360 million) for the full year.
Overall, the operating margin of 4.2% posted by this group of European carriers was a huge improvement on a year ago. In 2003, the same carriers managed only 0.9%, in what is typically a lucrative quarter, reflecting the double hit of the Iraq war and SARS. However, the surge in fuel prices has ensured that the industry is not yet in rude health.
Healthy Asia
It is a similar story in the Asia-Pacific region, where airlines have been mainly reporting healthy profits as they continue to recover from the effects of last year's SARS outbreak. But there have been a few exceptions where fuel costs are having more of an impact than anticipated.
Thai Airways International is one that disappointed with a surprise loss for the quarter, the third in its fiscal year. It blamed its poor showing on higher costs and foreign exchange losses. Despite this disappointment, the carrier was still profitable for the nine-month period and its cumulative result was better than last year's.
Another below-par performance came from Malaysia Airlines, which booked a much smaller than expected profit for the quarter. It also warned that high fuel prices would continue to have an impact on its bottom line this year - a sentiment shared by most Asia-Pacific carriers, including those doing well.
Singapore Airlines (SIA) bounced back to profitability from an unprecedented quarterly loss a year ago as it benefited from a continuing recovery in demand. Although higher fuel prices added to expenditure, they were countered by hedging and foreign exchange gains.
The carrier expects fuel prices to remain high and "compromise the otherwise positive sentiment for the remainder of the year". SIA also expects competition to intensify on some South-East Asian routes because of the launch of new low-fare airlines, putting pressure on yields.
Hong Kong's Cathay Pacific Airways, meanwhile, rebounded from first-half losses last year due to SARS. The airline warned of the impact of high fuel prices but said: "Prospects for the traditionally stronger second half of the year appear to be good."
In Taiwan, China Airlines and EVA Air also reported a return to profitability for the first half, while in China, China Eastern and China Southern Airlines also returned to profitability for the first half, although their results fell short of expectations.
Japan mixed results
Mixed results came from Japan, with All Nippon Airways crediting its restructuring efforts for profits in the June quarter, but Japan Airlines blaming higher costs for its loss. Both expect full-year profits, however, as the Japanese economy improves and as their respective restructuring efforts bear fruit.
In South Korea, Asiana Airlines posted a solid net profit for the first half as it recovered from SARS-induced losses last year.
Rival Korean Air reported a sharp drop in first-half earnings, despite revenue gains and a good second quarter performance. The fall was due in part to asset write-downs and increasing domestic competition from high-speed trains. However, the airline expects a positive full year as cargo and international traffic has been increasing steadily.
Meanwhile, results from Australia continued to impress as Qantas Airways posted record profits for its financial year to June and said that it expects to improve on them further this year. Air New Zealand's earnings also nudged up despite a dip in revenue and weaker yields.
REPORT BY COLIN BAKER IN LONDON/NICHOLAS IONIDES IN SINGAPORE ANALYSIS BY FABRICE TACOUN IN LONDON
Source: Airline Business
