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.

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)

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)

Bankia Sells IAG Stake For EUR€675 Million

Spain has lost its direct influence in airline group IAG in the midst of its controversial restructuring, after lender Bankia sold its stake in the airline company for EUR€675 million (USD$877 million).

Bankia, bailed out to the tune of EUR€24 billion by the state last year, sold the 12 percent stake on Thursday as part of a recovery plan agreed with the government and the European Union.

International Airlines Group (IAG) was formed in 2011 by the merger of British Airways and Spain’s Iberia.

Losses at the Spanish airline, however, have led IAG to launch a restructuring at Iberia, which includes thousands of lay-offs and sparked strike action earlier this year, in a country where more than a quarter of the workforce are jobless.

“A forced sale like this one tends to have dangerous implications. The (Spanish) government should be able to have a say in its only national airline, which has a major role in the economy,” said Jose Maria Marin, a professor at the state-run National University of Distance Education (UNED).

As a result of the stake sale, the Spanish government – through Bankia – will lose a seat on IAG’s board. However, certain safeguards for Iberia’s business that were put in place at the time of the merger – such as the routes it can fly – remain in place until 2016.

“Spain’s influence in IAG is reducing,” said Cantor Fitzgerald analyst Robin Byde. “Iberia now accounts for around 26 percent of IAG’s capacity… maybe those who said the merger was more of a BA takeover were right.”

The buyers of Bankia’s stake are unknown, though financial sources told Reuters news agency that book-runner Merrill Lynch had sold the 224 million shares to a wide range of investors.

Bankia and IAG said in statements only that the shares had been placed with “institutional investors”.

Last year IAG chief executive Willie Walsh said there was no strategic value in having Bankia as a shareholder and that the group was open to another airline taking Bankia’s stake, though analysts doubted a rival would step in.

There had been speculation Qatar Airways may be interested in the stake but both Walsh and Qatar Air CEO Akbar Al Bakar dismissed the possibility.

MORE TO COME

Iberia has become unprofitable in all markets, including long haul, and its problems are critical, IAG said last week. The Spanish airline reported an operating loss of EUR€202 million in the first quarter.

Staff staged two five-day walkouts in February and March but halted industrial action after IAG reduced the number of lay-offs at the Spanish flag carrier to 3,141.

(Reuters)

IATA Raises Airline Industry Profit Forecast

Global airlines should post an industry profit of USD$12.7 billion this year, an increase from a previous USD$10.6 billion forecast, as lower oil prices and belt-tightening offset difficult economic conditions, industry group IATA said on Monday.

However, the International Air Transport Association said margins remained weak amid Europe’s ongoing debt crisis.

“The day-to-day challenges of keeping revenues ahead of costs remain monumental,” IATA director general Tony Tyler said at a meeting of more than 200 airlines in Cape Town.

“On average, airlines will earn about USD$4 for every passenger, which is less than the cost of a sandwich in most places,” he told Reuters Television.

Addressing reporters later, Tyler said record passenger numbers and growth in “ancillary” revenues were the two key reasons driving improved profitability.

Airlines are expected to fill 80.3 percent of seats and transport an unprecedented 3.13 billion passengers in 2013, up from 79.2 percent and 2.98 billion respectively last year, as operational changes and better capacity management filter through.

Tyler said ancillary revenues would rise to USD$36 billion, or 5 percent of total turnover, as airlines unbundle more services from base fares and charge for additional services such as meals, extra baggage and seats.

“These are significant factors that are driving performance,” Tyler said.

(Reuters)

The end of the free upgrade

A free move into business class could become a thing of a past as the major airlines look to raise extra revenue online

The economy passenger’s dream ticket – a free upgrade at the departure gate – now looks endangered.

Online upgrade auctions that allow travellers with cheap tickets to make blind bids for unfilled business class seats are on the rise, as airlines across the world catch on to the innovative new way of making extra cash.

Last week Austrian Airlines became the latest carrier to start taking bids-for-beds, following in the footsteps of Air New Zealand, El Al of Israel, Etihad of Abu Dhabi and Virgin Atlantic.

In future, passengers buying cheap tickets for long-haul flights via Vienna are invited to bid for an upgrade to the business class cabin, which boasts 2 metre-long flat beds. If successful, they also get fast-track security, access to business lounges and improved catering.

The technology behind the bidding services has been developed by American software developer, Plusgrade, which claims it is in talks with several other carriers about offering the facility. The firm’s chief executive, Ken Harris, told The Independent: “Everybody loves an upgrade. At this very moment there are many smiling passengers in the sky, criss-crossing the world”.

The airlines that have signed up are all aiming to fill seats that would otherwise fly empty. They want to squeeze more cash out of economy passengers, while attempting to ensure they don’t “cannibalise” earnings from existing full-fare business travellers. Therefore, the system uses even more smoke and mirrors than usual in the airline industry.

When a passenger buys a ticket on a flight that is predicted to have empty business class seats, he or she will be invited to bid for an upgrade. Airlines are coy about the average level of winning bids for fear of setting a “price list” that may persuade existing business-class passengers to switch. Karsten Benz, chief commercial officer of Austrian Airlines, said: “With a bit of luck a small additional charge is enough.”

Some airlines exclude passengers who buy the most heavily discounted tickets, while Air New Zealand insists that bids are placed at least a week before departure. The Air NZ auction, called “One Up”, uses a colour-coded on-screen meter to indicate how successful a bid is likely to be: a NZ$100 (£55) offer for a Heathrow-Auckland flight from economy to premium economy shows red, while a bid for 10 times as much gets a green.

Successful bidders are contacted at least three days ahead, while those who bid too low travel as originally planned; their credit card is not charged.

Air New Zealand tells disappointed bidders: “We can’t go into specifics about why requests are not successful.”

Aircraft are flying fuller than ever before. International Air Transport Association figures for 2012 show an average “load factor” – the proportion of seats filled – above 79 per cent, meaning that on a typical flight only one in five seats is empty.

Traditionally, average load factors have varied between 70 and 75 per cent. More tightly packed economy cabins means the attraction of business class increases. Yet the premium for, say, Virgin Atlantic’s Upper Class is astronomical. The cheapest Virgin ticket from Heathrow to New York, departing tomorrow and returning a week later, is £462 in economy but £5,400 in business – more than 11 times as much.

The airline now auctions Upper Class seats on “almost all routes”. A spokeswoman for Virgin Atlantic said: “Passenger acceptance has been good – with a good take up rate.”

British Airways has no plans “at the moment” to emulate its rival by introducing upgrade auctions, according to a spokesman. At present, BA passengers can pay a specified amount to upgrade existing bookings.

BA, in common with other full-service airlines, sometimes awards free upgrades. The Gatwick-Thessaloniki flight last Saturday was a typical case. Like many weekend flights, it was “oversold” in economy class – but BA correctly judged that there would be space in business class, and that passengers could be moved to the front of the plane.

The beneficiaries were not picked randomly, but by scanning the manifest for gold card holders, signifying a high-spending traveller on BA.

Some frequent flyers regard the occasional free upgrade as a well-deserved perk, and are alarmed that it might be eroded if the empty flat beds are all auctioned off to the highest bidders.

Independent.co.uk

AirAsia profit soars, bullish on outlook

AIRASIA, Asia’s largest low-cost carrier by fleet size, says its fourth-quarter profit has jumped 168 per cent year-on-year amid increased passengers.
AirAsia said in a statement that net profit for the quarter ending December 31 stood at 350.65 million ringgit ($A111.42 million), up from 130.68 million ringgit in the same quarter the previous year thanks to “a seasonally strong quarter”.
Revenue for the quarter was a record 1.41 billion ringgit, up 10 per cent, as more people flew the airline, which increased its aircraft in Malaysia to more than 60.
“It has been another good quarter and overall a great year for AirAsia as we continue to defy the industry in terms of operational and financial performance,” said Malaysia AirAsia chief executive officer Aireen Omar.
For the full financial year, AirAsia recorded a 238 per cent jump in net profit to 1.88 billion ringgit despite a 1.0 per cent rise in the average fuel price this year.
Its 2012 revenue increased by 11 per cent to 5.0 billion ringgit.
Group chief executive officer Tony Fernandes was bullish about the year ahead as AirAsia expands its model – no frills and keeping operational costs low.
“The aviation landscape is constantly changing with high fuel prices and new competition, but through all these challenges AirAsia will continue to defend our leadership titles,” he said.
AirAsia has grown rapidly since Fernandes, a former record industry executive, bought the failing airline in 2001. It initially had only two aircraft in operation.
The group now has a total fleet of 120 A320s and has set up subsidiary budget carriers in Indonesia, the Philippines, Thailand and Japan.
The airline, one of the biggest customers for European aircraft maker Airbus, is expecting 360 more aircraft to be delivered by 2026.
Last week it announced a new airline joint venture with India’s Tata conglomerate.
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