NICHOLAS IONIDES & COLIN BAKER
First half operating results from the major Asian and European carriers show a rapidly deteriorating industry well before the events of 11 September
The red ink had already flowed liberally for the US majors in the first half of 2001. As the summer progressed, it was the turn of the Asian and European carriers to follow suit with a weakening set of results. They paint the picture of an industry feeling the chill wind of slowdown in an increasingly severe manner over the course of this year.
Major airlines in the Asia-Pacific region had a tough first half as US economic uncertainty, weak local currencies and sharp declines in cargo traffic brought down profits and pushed many into the red.
And just as it was looking as though the second half could bring improvement in the form of a recovery in traffic, analysts began slashing forecasts in the wake of the terrorist attacks in the USA.
The region's airlines have been careful not to show panic, however, and have not moved to unveil capacity cuts or slash flying like their US counterparts and some European airlines. But analysts say deep cuts may be in store.
Export dependent
In Taiwan, an economy heavily dependent on exports related to the USA's badly-hit high-technology sector, China Airlines (CAL) and EVA Airways reported a mixed set of results for the first half ended June, although both suffered from cargo revenue declines.
The airlines depend heavily on freight operations and both were hurt by the fall in technology exports. CAL reported static first-half pre-tax profits again at NT$1 billion ($33 million) and has yet to publicly revise downward its forecasts for the second half. But EVA quickly slashed its expectations after falling deeper into the red, reporting a NT$2.5 billion loss compared with NT$1.3 billion profit a year ago.
South Korea's two airlines, Korean Air (KAL) and Asiana Airlines, are also heavily dependent on cargo traffic and were battered in the half. Both reported hefty losses and the second half is looking to be a further disaster, in part because of revenue losses from severed or delayed codeshare deals with US airlines following the FAA's downgrade of South Korea's aviation safety rating in August.
KAL and Asiana were also badly hurt by the weakness of the Korean won, which pushed up US dollar-denominated costs. Analysts say both will be looking to make cuts in the second half.
In China, the country's two major publicly traded carriers China Southern Airlines and China Eastern Airlines reported sharp profit-falls for the six months ended 30 June. Higher fuel costs hurt both particularly hard, while depressed yields and overcapacity in the cargo sector on transpacific routes in particular were also cited as negative factors.
In Hong Kong, Cathay Pacific Airways also suffered during the same six-month period from a downturn in the US, Japanese and other Asian economies, but it remained profitable. Revenue from its cargo operation, Cathay's star performer last year, fell 13% during the period. The airline is also expected to be hard hit in the second half, as a dispute with pilots badly disrupted operations in July and the airline is heavily reliant on North American traffic.
Thai Airways has also been hurting and reported worse-than-expected earnings for its nine months ended June, barely breaking even with 194 million baht ($4 million) against 8.5 billion baht a year earlier.
In Australasia, meanwhile, where airlines report full-year 2000/1 results to June, another weak set of figures was released. Qantas Airways reported its first full-year profit fall in six years as a result of tough domestic competition, a weak Australian dollar and a global economic slowdown, but analysts called its earnings positive given the many challenges.
Ansett grounded
The same did not apply for rival Ansett or its troubled parent, Air New Zealand (ANZ). The group placed Ansett in administration on 12 September and wrote down its investment in the carrier, which was grounded by administrators on 14 September.
In Europe, profit warnings were following in quick succession as the downturn worsened prior to 11 September, and British Airways had already begun to cut staff numbers. Carriers reporting half-year and first quarter results in June saw operating margins drop sharply, with few exceptions.
A glance at some of the comments European carriers were making about their prospects for the second half of 2001 prior to the attack on the USA demonstrate clearly how concerned they were becoming at the economic situation.
Austrian Airlines said: "We are assuming a continuing difficult environment in the second half," while according to BA "the outlook for the rest of the year remains challenging...we expect the winter months to be more difficult depending on the economic performance of our major markets."
KLM joined the ranks of the cautious saying: "The effects of the economic downturn have become more pronounced during this quarter. Due to the uncertainty regarding the full impact of the downturn on the airline industry as well as the timing of economic recovery, we are taking a cautious stance on our forecast."
| Asia Pacific airline group financial results first half 2001 | |||||||
| Airline Group | Group Revenues | Operating result | Operating margins | Net result | |||
|
| $million | change | $million | 2001 | 2000 | 2001 | 2000 |
| Korean Air | 2,114 | 5.9% | -115.9 | -5.5% | -1.9% | -268.4 | -153.4 |
| Cathay Pacific | 2,031 | -1.9% | 133.3 | 6.6% | 14.7% | 170.7 | 284.8 |
| China Southern | 975 | 14.3% | 103.5 | 10.6% | 16.0% | 24.3 | 42.0 |
| Asiana Airlines | 814 | 7.2% | 20.5 | 2.5% | 10.7% | -121.3 | 47.3 |
| China Eastern | 702 | 23.8% | 45.7 | 6.5% | 9.7% | 8.5 | 24.5 |
| Note: Results for period to June. All figures are in US dollars exchanged at average rate for period. All changes given in local currency terms. Previous year's net profits at constant current rates. | |||||||
| Australasian airline group financial results YEAR 2001 | |||||||
| Airline Group | Group Revenues | Operating result | Operating margins | Net result | |||
|
| $million | change | $million | 2001 | 2000 | 2001 | 2000 |
| Qantas | 5,331 | 13.3% | 312.1 | 5.9% | 8.5% | 217.1 | 270.7 |
| Air New Zealand | 3,389 | 116.0% | -118.1 | -3.5% | 5.9% | -600.4 | 78.4 |
| Note: Year to end June 2001. Results are for airline groups including non-aviation businesses. All figures are in US dollars exchanged at average rate for period. All changes given in local currency terms. Net result at constant current rates. Air New Zealand includes fully integrated Ansett for the first time. | |||||||
| European airline group financial results First Half - Jan - Jun 2001 | |||||||
| Airline Group | Group Revenues | Operating result | Operating margins | Net result | |||
|
| $million | change | $million | 2001 | 2000 | 2001 | 2000 |
| Lufthansa Group | 7,358.6 | 4.8% | 94.2 | 1.3% | 4.5% | -38.6 | 412.9 |
| Swissair Group | 4,759.1 | 8.3% | -25.1 | -0.5% | -1.9% | -136.8 | 1.8 |
| SAS | 2,488.8 | 12.7% | 126.6 | 5.1% | 5.8% | 13.5 | 52.8 |
| Finnair | 794.6 | 4.9% | 40.4 | 5.0% | 5.2% | 25.5 | 54.0 |
| Braathens | 381.6 | 3.1% | -67.1 | -17.6% | 17.6% | -73.7 | 41.9 |
| Virgin Express | 98.6 | -21.4% | -0.8 | -0.8% | -14.8% | -1.5 | -18.1 |
| European airline group financial results June quarter - Apr-Jun 2001 | |||||||
| Airline Group | Group Revenues | Operating result | Operating margins | Net result | |||
|
| $million | change | $million | 2001 | 2000 | 2001 | 2000 |
| British Airways | 3269.8 | -3.56% | 71.2 | 2.2% | 4.2% | 56.9 | -71.2 |
| Air France | 3028.2 | 11.22% | 227.1 | 7.5% | 6.2% | 175.0 | 239.6 |
| KLM | 1536.5 | -1.95% | 20.6 | 1.3% | 5.7% | 17.1 | 38.6 |
| Ryanair | 135.4 | 27.93% | 25.8 | 19.1% | 19.4% | 20.8 | 16.2 |
European uncertainty
Scandinavian carriers have been unified in their uncertainty, with Finnair also noting how hard short-term forecasting has become.
In Norway, Braathens saw operating results, margins, and net results collapse, providing timely evidence that the carrier's survival is far from certain - before any adverse impact from the terrorist attacks is taken into consideration. Oslo had blocked a takeover bid from SAS on the grounds that there was not enough evidence that Braathens was a failing firm - a decision against which SAS is appealing.
Air France kept up its recent good record, actually managing to increase margins. The airline which stood out from the crowd, however, is Ryanair, with revenue growth and operating margins that Europe's flag carriers can only dream about.
In a recent radio interview, former BA chief executive Bob Ayling said that some of Europe's flag carriers would have to follow the business model of low-cost carriers more closely if they are to survive the current crisis.
Whether or not this happens, it is interesting to note that Ryanair was actually upgraded by Schroder Salomon Smith Barney in the wake of the US atrocities.
Source: Airline Business
