Ryanair posts first third quarter loss in three years

Ryanair has reported its first third quarter loss since 2010 as it cut fares to boost demand over winter.

The low cost carrier made a loss after tax of €35.2m (£29m) for the three months to December 31 compared to a €18.1m post-tax profit during the same period in 2012.

Although airlines usually make losses over the winter, it is the first time Ryanair has made a third quarter loss since 2010.

Passenger numbers during the period increased 6pc to 18.3 million but revenue dipped to €964m from €969m previously as revenue per passenger fell 6pc.

The carrier, which issued two shock profit warnings in the autumn, grew ancillary charges – which include food and drink onboard – but fares declined 9pc.

Ryanair is facing growing competition from expanding low cost rivals such as Vueling and Norwegian and has also admitted easyJet “wiped the floor with us” by introducing customer service improvements much earlier.

The airline is still guiding towards full year profits of around €510m – a figure which was revised down twice following profit warnings in September and November.

Ryanair chief executive, Michael O’Leary, said the third quarter loss was “in line” with previous guidance.

Mr O’Leary, who is known for his colourful outbursts, is taking a step back from the public spotlight as Ryanair introduces a more corporate image. It has rolled out a raft of customer service improvements including, most recently, the introduction of fully allocated seating across all of its flights.

Michael Cawley, deputy chief executive, admitted that Ryanair had been “beaten by the competition”, speaking to Radio Four’s Today Programme on Monday morning.

Daily Telegraph

Cash-strapped airline Alitalia rejects Ryanair’s collaboration offer

Alitalia has rebuffed an offer from Ryanair to feed passengers into its long-haul routes and help boost the Italian carrier’s profitability.

“Alitalia … has its own strategy, an industrial plan, a fleet and its own crew that allow it to have the necessary passenger traffic to feed its international and intercontinental connections leaving from the hub at Fiumicino airport,” Alitalia said in a statement.

Budget airlines are usually based further from city centers, and Ryanair wanted to leverage the new routes it has secured from Rome’s Fiumicino, which is also Alitalia’s hub.

“Ryanair believes that its offer to feed Alitalia’s international hub at Fiumicino, and seek opportunities to work together and help Alitalia to recover, can help new investors and Alitalia’s management in returning to profitability and reliability,” Ryanair said in a statement.

Alitalia, the target of a government-engineered €500m rescue plan, said it had its own restructuring plan in place and offered similar prices to Ryanair, suggesting the two firms were not natural partners.

“At hub airports in all developed countries, cooperation is avoided between hub carriers and low-cost airlines. It is not by chance that low-cost airlines find space and operate in small airports dozens of kilometers from the cities,” it said.

Italy’s flag carrier has made a profit only a few times in its 67-year history and is running out of cash again.

The deadline for shareholders to subscribe to a 300 million euro capital increase, intended to buy the airline time as it looks for a cash-rich foreign partner, expires on Wednesday.

Earlier this month, Alitalia’s board approved a revised business plan, promising deep cost cuts to make the struggling airline more competitive.

Reuters

Ryanair blames lower fares for latest profit warning

Ryanair is on course for its first fall in profits in five years, saying that increased competition and a weak economic backdrop will force it to cut fares by up to 10% for the winter months.

The budget airline issued its second profit warning in recent months after average fares fell 2% during the first half of the financial year. It said fares were likely to fall by up to 10% by the end of the financial year to 31 March 2014, despite slightly higher forward bookings.

The Irish budget airline cut its full-year profit guidance to around €510m (£432m) from €570m, “due entirely to this lower fare environment”. It would be Ryanair’s first fall in profit since 2009.

“People have less money to spend,” the airline’s chief financial officer, Howard Millar, told Bloomberg. “We had a strong August, since then we’ve started to see a weakening environment.”

The bad news sent its shares down 10% and hit the wider airline sector, with easyJet and British Airways group IAG shares both sharply lower.

Ryanair had already hit investors with a surprise profits warning in September, cautioning at that time that profits might fall at the lower end or below its previous range.

Ryanir’s chief executive, Michael O’Leary, told shareholders at the company’s annual meeting in the same month that he recognised the need to address the “abrupt culture” at the airline, known for its no-frills service and additional charges.

“We should try to eliminate things that unnecessarily [annoy customers]. I am very happy to take the blame or responsibility if we have a macho or abrupt culture. Some of that may well be my own personal character deformities,” he said at the time.

O’Leary said on Monday that the airline had responded to the dip in forward fares and yields by lowering it full year traffic target to just under 81 million from over 81.5 million.

“We also released a range of lower fares and aggressive seat sales to stimulate traffic, load factors and bookings across all markets,” he added.

“Market pricing remains weak, so we will continue to promote low fare seat sales throughout the remainder of both Q3 and Q4.

“Forward bookings are running slightly ahead of last year, but the softness in fares and yields continues.”

Profit after tax rose 1% to €602m in the first six months of the year to 30 September, with passenger numbers up 2% at 49m.

Revenue increased 5% to €3.25m.

Ryanair completed €177m of share buy-backs in the first half, and said it would press ahead with its plan to return up to €600m to shareholders through buy-backs and special dividends before the end of the 2015 financial year.

Alitalia Bankruptcy Risk If No Capital Injection

Alitalia risks having to file for bankruptcy if no deal on a proposed capital increase is reached in a couple of weeks, a government source said on Tuesday.

Alitalia’s shareholders will vote on a capital increase of at least EUR€100 million (USD$136 million) on October 14 to help keep the company afloat.

“Alitalia risks filing for bankruptcy if no solution on the capital increase is found in a couple of weeks,” the government source told Reuters news agency.

Alitalia needs around EUR€500 million to keep going and to be able to invest in a new turnaround strategy, analysts have said, after accumulating losses of over EUR€1 billion since being privatized in 2009.

Air France-KLM owns a 25 percent stake in the carrier.

(Reuters)

Flybe dismisses three directors amid operations overhaul

Flybe, Europe’s largest independent regional airline, has shown three directors the door and merged its divisions as part of the struggling group’s drive to cut costs and stem losses.

New chief executive Saad Hammad, who announced a full review of Exeter-based Flybe’s operations when he took over in August, has moved quickly to restructure the business ahead of his own three-month schedule.

The airline group’s divisional structure, comprising the passenger airline Flybe UK and its leasing operation Flybe Outsourcing Solutions, will be disbanded, with all the operating units integrated.

Three directors running the two divisions and corporate strategy – Andrew Strong, Mike Rutter and Mark Chown – have left Flybe. Paul Simmons will join the company from easyJet as chief commercial officer next month.

Hammad commented: “It has quickly become clear to me that Flybe’s prospects will be significantly enhanced by disbanding the existing divisional structure and integrating all operations into a single, simpler and lower cost operating unit. Today’s announcement facilitates that move and will form an important part of the strategic review of the business which I expect to conclude in November. I look forward to sharing its full conclusions.”

Since the appointment of Hammad, a former director of Air Berlin and easyJet, Flybe shares have crept back up to over 87p, almost double the summer low. The airline has struggled since the economic downturn hit regional businesses hard, while UK aviation taxes have compounded its woes. Pre-tax losses reached £40.7m last year. An existing turnaround plan already aimed to slash £50m a year in costs, including laying off around 500 staff.

Alitalia Hires Bankers To Tackle Cash Crisis

Struggling Italian airline Alitalia has hired boutique investment bank Leonardo to help tackle a liquidity crisis that may see it running out of cash before year’s end.

The move is aimed at finding ways to raise more than EUR€400 million (USD$527 million) to keep the loss-making carrier afloat, a source familiar with the situation said.

Alitalia has struggled to make a profit throughout its life and has been bailed out repeatedly by the Italian state.

It agreed salary cuts with unions in June and its chief executive and board members reduced their pay by 20 percent ahead of the drawing up of a new strategic plan.

The airline, which quadrupled its net loss to EUR€280 million in 2012 compared with the year before, said in July it needed EUR€300 million this year to keep running but expected to break even by 2015.

The airline, which is 25 percent owned by Air France-KLM, was rescued from bankruptcy in 2008 and bought by a consortium of Italian companies including bank Intesa Sanpaolo, road operator Atlantia and holding company IMMSI, the owner of scooter-maker Piaggio.

The investors might sell out after the expiry in mid-October of a lock-up period, paving the way for new shareholders.

Alitalia said in a statement it had hired the bankers to “assist the company in its relationships with the banks.”

Italian newspapers said last month Alitalia was in talks with Etihad Airways on a commercial deal that might lead to the Abu Dhabi carrier taking a stake.

Alitalia and Etihad were also mentioned in the context of a possible tie-up earlier this year, but Etihad said at the time there were no talks between the two firms beyond those on code sharing.

Etihad was not available for comment but a source at Etihad said that, with a stake in Air Berlin and a commercial partnership with Air France-KLM, Etihad was not keen on another investment in a European carrier.

Alitalia earlier this year hired turnaround specialist Gabriele del Torchio to lead it back to profit.

The airline has pushed back to the end of September the approval of its mid-year financial statement, that was due to be approved by the board, mainly to address a tax dispute.

(Reuters)

Alitalia In Talks With Etihad

Alitalia is in talks with Etihad Airways on a commercial deal that may lead to the Abu Dhabi-based carrier taking a stake in the money-losing Italian company, daily il Sole 24 Ore reported.

Neither Alitalia nor Etihad could be reached for comment.

Citing unnamed sources, the paper said there had been several meetings in recent weeks between managers at both companies, including recently appointed Alitalia chief executive Gabriele del Torchio.

Del Torchio, who is known as a turnaround specialist, was recruited earlier this year to lead the struggling Italian airline back to profitability.

Alitalia, which is 25 percent owned by Air France-KLM, was rescued from bankruptcy in 2008, when it was bought by a consortium of Italian companies including bank Intesa Sanpaolo, road operator Atlantia and holding company IMMSI.

In its industrial plan presented in July, the new CEO said the company planned to increase its financial resources by EUR€300 million (USD$400 million) by the end of this year.

Alitalia and Etihad were mentioned in the context of a possible tie-up earlier this year, but Etihad said at the time there were no talks between the two firms beyond those on code sharing.

(Reuters)

ANALYSIS: Are Etihad’s ‘equity alliances’ redefining the industry?

It seems that not a month goes by without Etihad Airways adding a new partner to its mushrooming alliance grouping.

And an increasing number of these associations are much more than just codeshares, with the Abu Dhabi carrier now holding, or in the process of securing, shareholdings in six airlines. During the past few years, Etihad has built an impressive partnership constellation spanning the globe. At last count, it comprised 45 codeshare partners serving a virtual network of more than 350 destinations.

The airline, which has been profitable for the last two of its 10-year existence, kicked off its “equity alliance” strategy almost two years ago when it sailed to the rescue of loss-making Air Berlin by purchasing a 29% stake. At first, that deal raised a few eyebrows. But as further minority stakes were acquired in other airlines, the thinking behind the strategy became apparent.

Next up was Air Seychelles, in which Etihad took a 40% stake after Abu Dhabi was approached to help out. Etihad has subsequently taken smaller stakes in Virgin Australia and Aer Lingus, and is finalising deals with Serbia’s Jat Airways and India’s Jet Airways. The latter is headed by the inimitable Naresh Goyal. However, it is a strategy that certainly divides opinions. It was deemed a winning one by our esteemed panel of judges for this year’s Airline Strategy Awards. The panel, which comprises respected former airline chief executives, academics and analysts, named CEO James Hogan as the winner of the Executive Leadership category.

But others are not convinced. Some observers think that, backed by the wealth of Abu Dhabi, Etihad has gathered a hodgepodge of disparate airlines through some opportunistic equity deals in a mad dash to achieve scale, as its local rivals surge ahead organically. And Etihad’s limited financial transparency does little to help sway the sceptics. They also point out that history shows such strategies usually end in tears: “A lot of these equity bets are likely to go south on them,” says one doubter.

Hogan does not deny that the strategy was designed to provide a fast-track to growth. And he is also quick to dismiss comparisons with previous failed attempts to build brand constellations. “This isn’t the old Swissair model of acquiring brands. This is about how do we use this scale to improve the bottom line,” he says.

As outlined elsewhere, the Airline Strategy Awards judges felt that Etihad’s tactics were “shaking up the industry”.

One judge said that Etihad’s codeshares and bilaterals are undermining the global alliances: “It is putting out a marker for a different kind of airline industry where it’s less important which global alliance you’re in, and more important what deal you’ve made with individual members.”

Hogan is clear in his view that the sun is setting on the global-alliance era. He believes they have been “fractured” by the growing trend for tie-ups outside the groupings.

And Etihad is in the ­vanguard of that drive, riding roughshod over the three groupings as it casts its own alliance net wide. As one judge put it: “The airline is pioneering in that it’s going back to where we were 25 years ago – it’s breaking the mould of the alliances.”

But the refreshing thing for supporters and doubters alike is that circumstances dictate Etihad is having to do something different to Emirates and Qatar Airways. “It’s 18 years behind Emirates and has to apply a different strategy to gain market access,” said a judge. “And James Hogan has the advantage of being able to invest and cement the relationships.”

That Etihad has a strategy was never in doubt. And it is one that not only differs from its peers but is also bold, innovative and mould-breaking. Whether it will ultimately be successful will be hotly debated for some time to come. But with the might of Abu Dhabi behind it, failure is an unlikely option.

Comment from the August 2013 edition of Airline Business

Aer Lingus long haul expansion including new services to San Francisco and Toronto

Aer Lingus today announced significant expansion to its transatlantic route offering for 2014. In addition to its existing services to Boston, Chicago, New York and Orlando, the airline will commence year round direct service between Dublin and San Francisco from April, 2014 with five services per week being operated by Airbus A330 wide-body aircraft

Aer Lingus will also commence direct year-round service to Canada from April 2014. A daily direct Boeing B757 service between Dublin and Toronto will operate during the summer season, with up to four weekly services operating during the winter. Two Boeing B757 aircraft will be based in Shannon and will be used to deliver increased frequency on existing services to Boston and New York. Year-round connections from Shannon to the east-coast will be introduced. This expansion will directly support more than 200 new jobs.

In addition to direct access to San Francisco, Aer Lingus customers travelling from a number of UK and European cities via Dublin, will benefit from a wide choice of onwards connections to sixteen popular cities on the West Coast and beyond including Seattle, Los Angeles, Las Vegas and San Diego. The new San Francisco route also represents a business opportunity for Aer Lingus Cargo.

Aer Lingus customers travelling from over twenty UK and European cities via Dublin to Toronto, will also have the option to connect to eight key cities within Canada including Vancouver, Montreal and Calgary.

This growth plan will bring the Aer Lingus long haul schedule to 10 daily transatlantic services, connecting Ireland and Europe with cities throughout North America.

Christoph Mueller, Chief Executive, Aer Lingus, said: “Our transatlantic business goes from strength to strength. This expansion is extremely positive news for Aer Lingus and for the broader economy in terms of business, tourism and employment. Our transatlantic capacity will increase by 24% in 2014, following on from the 13% additional capacity in our 2013 transatlantic schedule. Our operation of the San Francisco route will strengthen Ireland’s ties with Silicon Valley and encourage Ireland’s development as a technology hub for Europe. San Francisco’s Silicon Valley is home to many of the world’s largest technology companies and several of these companies have European headquarters in Dublin.”

He continued: “Toronto is the sixth biggest North American market out of Ireland. In addition to being a great tourist destination, the city is home to a large Irish community and we look forward to welcoming them on board. We are confident that the increased number of flights from Shannon to New York and Boston will bring additional tourists to the Western region.

Commenting on the announcement, Leo Varadkar TD, Minister for Transport, Tourism and Sport, said: “This announcement of new services by Aer Lingus is fantastic news. This Government has always sought to improve air access to key tourism and business markets, such as the US and Canada. Canada is the world’s 11th largest economy and California is reckoned to be the world’s 12th largest. I know that the business and tourism sectors are delighted with this news. More than 40% of Ireland’s total foreign direct investment comes from Silicon Valley alone. The return of the direct air service to the US west coast is particularly important and I’m very happy to see the route being filled by an Irish airline.”

To support the operation of the new routes, Aer Lingus will wet lease three Boeing 757 aircraft from ASL Aviation Group. The aircraft will be configured with an economy and business class cabin. Business travellers will continue to enjoy the same great level of service; with gourmet meals, sleeper seats and an extensive in-flight entertainment selection.

ANA To Buy AirAsia Out Of Japanese Budget JV

ANA will buy AirAsia out of a Japanese budget airline joint venture for JPY¥2.45 billion (USD$25.11 million), the Malaysian low-cost carrier said, dissolving a loss-making alliance after less than two years.

The venture, based at Tokyo’s Narita airport, has failed to win over Japanese passengers since it was set up in August 2011. ANA, which owns 67 percent of the venture, has blamed the poor performance of AirAsia Japan on ineffective marketing and a non user friendly booking website.

Differences in opinion on issues ranging from cost management to where the business should be based contributed to the breakup, AirAsia said in a statement on Tuesday.

The split comes at a time when AirAsia is planning to expand overseas. The pullout from the venture, however, is consistent with AirAsia’s past decisions to drop loss-making routes.

“I remain positive on the Japanese market and believe there is tremendous opportunity for a low-cost carrier to succeed,” AirAsia Group chief executive Tony Fernandes said in the statement.

“We have not given up on the dream of changing air travel in Japan and look forward to returning to the market,” he added.

AirAsia Japan has been reporting losses since it began operations with flights to five local destinations and two in South Korea.

The venture cut ANA’s operating profit by about JPY¥3.5 billion in the year ended March, ANA’s senior vice president Shinzo Shimizu said on Tuesday.

“We judged it would be better to operate the carrier as a wholly owned unit,” Shimizu said at a press conference in Tokyo.

OPTIONS

ANA has another budget joint venture Peach based at Osaka’s Kansai airport.

Local rival Japan Airlines operates Jetstar Japan, a joint venture with Qantas Airways that has bases in both Narita and Kansai.

Shimizu said ANA will decide in July how to operate the former AirAsia venture and will choose a name for the unit.

A possible merger with Peach was one option being considered, he added.

The unit will use the AirAsia livery until November.

(Reuters)