Report by Nicholas Ionides in Singapore, David Knibb in Seattle and Brendan Sobie in London
Most major Asia-Pacific and European carriers continue to report healthy profits – at least for now
Major airlines in Europe and the Asia-Pacific were generally profitable in the quarter ending June, backed by healthy revenue growth, but are now watching closely for signs of a global economic slowdown.
In Asia and Australasia, revenue growth was strong across the board on the back of firm demand but several carriers recorded drops in their bottom-line numbers. Singapore Airlines (SIA) led the pack with a S$274 million ($173 million) operating profit, an 8% increase over the previous year. It cited both a strong revenue environment and “ongoing efforts toward improved cost management, efficiency and productivity”.
Another airline that has been trying to aggressively cut costs is Hong Kong’s Cathay Pacific Airways, which despite a 13% rise in turnover in the first half reported flat earnings. China’s three major carrier carriers also recorded solid revenue growth over the first six months of the year but saw their profits slide due to increased costs. Air China reported a sharp drop in net profit, China Eastern Airlines a much bigger net loss and China Southern Airlines a slightly smaller loss.
Japan Airlines managed to cut its losses for the quarter on the back of stepped-up “cost restructure reforms”. Rival All Nippon Airways again reported solid profit growth on the back of “the continued economic recovery in Japan and strong demand for individual and international business travel”. Similar comments came out of South Korea, where both Asiana Airlines and Korean Air returned to profitability in the quarter.
In Australasia, both Qantas Airways and Air New Zealand reported weaker earnings, saying they are planning ambitious reorganisations to counter the depressing effect of fuel prices. Annual profit dropped 30% at Qantas and 47% at ANZ, driven by soaring fuel costs.
Chief executive Geoff Dixon warns that “you won’t recognise Qantas in four years time” because of his aggressive restructuring plans. Highlights include acquisition of an Australian freight company, a four to fivefold expansion of Jetstar, more third party maintenance and reorganisation of Qantas international and domestic operations. Qantas is also studying whether to spin off some of its divisions and then float them, possibly Jetstar, QantasLink and its fast-expanding freight unit.
ANZ chief executive Rob Fyfe says “we cannot solely hide behind fuel price increases” as there are “still more tough, strategic, workforce, and workplace decisions” that ANZ must make. Fyfe says ANZ’s goal is to cut costs by another NZ$100 million ($65 million) this financial year, including shedding 400 head office positions and scrutinising marginal routes.
In Europe, the picture is a bit brighter with nine of the 10 major carriers reporting their financial results for the quarter ending June showing an operating profit. Revenues grew at double-digit clips at eight of the carriers and despite higher fuel prices six saw their profits grow compared with the previous year.
Europe’s three largest carriers had the best results, buoyed by strong business traffic. Air France-KLM saw its quarterly operating profit soar 84% to €411 million ($522 million), while Lufthansa recorded a 33% improvement to €372 million and British Airways turned in a 20% increase to £211 million ($388 million).
“We can see progress and potential in all our business segments,” says Lufthansa chief Wolfgang Mayrhuber. “Raising profits by close to €40 despite the high oil prices demonstrates Lufthansa’s strength.”
IATA’s Giovanni Bisignani says: “Strong growth in premium traffic is the positive spin-off from a stronger European economy.” .
Most carriers in Europe and Asia remain upbeat about the near-term demand trends. “The outlook for air travel remains broadly positive for the rest of the financial year, supported by favourable economic conditions,” says Singapore Airlines. ■
Source: Airline Business
