European and Asian carriers are signalling that recovery is now firmly under way, although fuel prices are a concern
The March quarter results showed signs of encouragement for Europe's mainline carriers, with a distinct improvement on what had admittedly been a weak first quarter in 2003. For once, however, it is the low-cost sector issuing the profit warnings (see related story page 21) as fierce competition takes its toll on yields.
Of those airlines reporting for the full year to March, British Airways continued to see the benefits of its Future Size and Shape cost-cutting programme bear fruit, with operating margins above the 5% mark. BA reports that long-haul premium volumes are steadily recovering, short-haul premium remains at lower levels, while non-premium volumes are very price-sensitive.
The latter can certainly be attested to by easyJet. The carrier said it was "cautious" rather than optimistic for the full year given the "increasingly competitive market place". EasyJet, which publishes figures every six months, lost £27.3 million ($16.1 million) before tax in the half-year to March, traditionally a weak quarter, but still made £72.3 million on a rolling 12-month basis.
Ryanair, which saw revenues exceed the billion dollar mark for the first time, reported an operating profits decline by 5% on the back of a 14% decline in yields. Net profit margins slipped - from 28% to 21% - still a figure beyond the wildest dreams of most mainline carriers.
Even so, the likes of Lufthansa and Air France-KLM have been giving out positive statements on the 2004 outlook. "Providing the present trend takes root and strengthens, we should be able to turn in a significantly better operating profit and a positive net result at the close of 2004," says Lufthansa. Air France-KLM, meanwhile, says it is targeting "a substantial increase in profit".
Fuel is of course a concern. Finnair, for instance, estimates that ticket prices will have to rise by 2-3% to compensate, and a number of carriers have added fuel surcharges.
Asian rebound
Most major Asian carriers recorded healthy profits for the financial year to March despite suffering badly in the first quarter due to the effects of the war in Iraq and the SARS outbreak. But all are cautious about the current financial year due to higher fuel prices and are keeping a close watch on costs.
Singapore Airlines (SIA) recorded one of the strongest financial recoveries after suffering unprecedented first-half losses, with much higher than expected full-year gains. While its profits were down on the previous year, the results far exceeded SIA's expectations as well as those of analysts.
SIA warns, however, that the outlook for the current financial year is "mixed", because of an increase in competition on regional routes and higher fuel prices. As a result "it is imperative that costs continue to be kept under control".
Malaysia Airlines (MAS) also reported solid earnings for the financial year with its largest profits since its 1985 listing. The figures were all the more impressive given that the previous year's results included huge gains related to a financial restructuring that saw the government acquiring all of the airline's aircraft and other assets and leasing them back.
MAS says the positive numbers allow it "to declare successful implementation of its turnaround strategy".
Japan's two main carriers reported mixed results, however, with All Nippon Airways (ANA) revealing a financial turnaround and Japan Airlines (JAL) falling deeply into the red.
ANA expects to maintain its new-found run of profitability for the current financial year, supported by "improving confidence in Japan's economy and the continued growth of ANA's services in the booming China market". The turnaround came despite a drop in both international and domestic passenger numbers last year.
JAL also says it has been successfully restructuring despite suffering steep losses for the last financial year. It expects to return to the black this year on the back of anticipated strong rises in international and domestic passenger revenue. It also expects significant cost cuts this year as the benefits of its takeover of Japan Air System take effect.
Although domestic passenger revenue increased last year, the group suffered from a sharp drop in international passenger revenue. It says the effects of the war in Iraq and the SARS outbreak lasted longer than expected and "recovery was slower than expected".
REPORT BY COLIN BAKER IN LONDON/NICHOLAS IONIDES IN SINGAPORE ANALYSIS BY FABRICE TACOUN IN LONDON
Source: Airline Business
