Lufthansa wanted as SAS owner

The Scandinavian business travelers’ agree. They want Lufthansa as owner of SAS airline, regardless if they are Danish, Norwegian or Swedish. No other airline even comes close, according to a press release from Swedish analysts Resegeometri.

In Resegeometri’s Nordic independent airline study 2011 as much as 51 % of the Scandinavian business travellers point to Lufthansa as the obvious choice in the event of possible changes in the SAS ownership structure.

“There are mainly three reasons why the business travel customers would prefer Lufthansa as owner,” says Vice President Jan Borg at Resegeometri Nordic AB. “Lufthansa is considered the best guarantee of a development in line with Scandinavian interests and needs, they are believed to have the best travel alternatives in terms of destinations and schedules, and are considered to offer the best service and quality.”

15 % of the business travelers would prefer continued Inter-Scandinavian state ownership in order to secure the region’s interests.

10 % consider AirFrance/KLM the best alternative, 8 % British Airways and 6 % Finnair.

Photograph: A Lufthansa Boeing B 737 in Frankfurt (photograph from Lufthansa)

Upturn for Air France-KLM

Air France-KLM’s passenger activity in the Third Quarter was strongly impacted by strike action in France in October, notably by air traffic control, followed by severe weather disruption in December. In total, the group was forced to cancel 6,900 flights, according to a press release issued by the group today.

The negative impact of these events on revenues is estimated at 100 million euros of which 70 million for December alone. On the other hand, cargo continued its recovery of the past year while maintenance also enjoyed a good level of activity.

In total the Air France-KLM group generated a rise in revenues of some 14% after a positive currency effect of 3.7%, and recorded an operating profit of 81 million euros, versus a loss of 245 million euros a year earlier. The impact of the disruptions on the operating result is estimated at 80 million euros. The net result remained in loss at -46 million euros, but this represented a significant recovery from the previous year.

Activity strongly impacted by external disruptions

The passenger business saw a 3.1% rise in traffic for capacity up by 1.6%. The load factor gained 1.2 points to 81.4%. Unit revenue per available seat kilometer (RASK) gained 11.0%. The cancellation of 6,800 medium-haul flights, which enjoy higher unit revenues than long-haul, shaved around half a point off this rise. Passenger revenues amounted to 4.54 billion euros, up 12.6%. The operating result stood at 12 million euros, an improvement of 196 million on the previous year.

Cargo continued to recover. Flight cancellations had little effect on this business which saw a rise in traffic of 4.9% for capacity up by 3.8%. The load factor gained almost a point to 70.4% (+0.7 points). Unit revenue per available tonne kilometer (RATK) rose 22%. Revenues rose by 27.7% after a positive currency impact of 6.7% to 830 million euros. The operating result stood at 60 million euros after a loss of 29 million euros at 31st December 2009.

Maintenance also achieved a good performance during the Third Quarter with revenues up by 11.4%, partly thanks to the rise in the dollar, to 264 million euros. Operating income amounted to 36 million euros against 12 million euros the previous year. Engines and components performed strongly during this quarter.

Good unit cost control

Operating costs rose 7.3% and by 2.2% excluding fuel. Unit cost per equivalent available seat kilometers (EASK), rose by 4.6% but declined by 1.7% on a constant fuel price and currency basis, while the rise in production measured in EASK was limited to 2.1%, impacted by the weather disruptions.

The main feature of the change in operating costs was the fuel bill which rose by 297 million euros to 1.35 billion euros (+28.2%) under the effect of a 3% rise in volumes, a negative currency effect of 10% and a rise in fuel prices after hedging of 14%. Employee costs fell 1.3% to 1.84 billion euros.

EBITDAR amounted to 708 million euros and the EBITDAR margin of 12.0% represented a five point gain on the previous year. Operating income stood at 81 million euros, an improvement of 326 million euros. Adjusted operating income stood at 152 million euros, giving an adjusted operating margin of 2.6%.

Net interest costs were virtually stable (91 million euros at 31st December 2010 against 87 million a year earlier). Financial income and costs amounted to -73 million euros (-48 million euros at 31st December 2009) including a 49 million euro negative currency result.

The pre-tax result stood at -99 million euros (-391 million euros at 31st December 2009). Net result, group share stood at -46 million euros (versus -295 million euros at 31st December 2009). The net result restated for non-recurrent items was -32 million euros versus -241 million euros at 31st December 2009. The net result per share, both undiluted and diluted stood at 0.16 euros against -1.0 euro a year earlier.

Nine months to December 2010: Operating result of 525 million euros

Results for the first nine months were impacted by the European air space closure in April and by the disruptions in Q3, which generated an operating loss of 238 million euros.

The passenger business saw a slight rise in traffic (+0.4%) with a reduction in capacity of 1.3%. The load factor gained 1.4 points to 82.6%. Cargo traffic progressed by 3.4% with capacity down 1.2%, leading to a 3 point rise in load factor to 68.6%. In both businesses, unit revenues progressed strongly (+15.1% per ASK and +37.0% per ATK).

Total revenues amounted to 18.29 billion euros (+14.5%). Operating costs increased by 6% to 17.76 billion euros, but by just 1.5% excluding fuel. Production measured in EASK declined by 1.0%, while unit cost per EASK rose 6.7% but was stable on a constant fuel price and currency basis.

The operating result improved by 1.31 billion euros on the previous year to 525 million euros against a loss of 788 million euros at 31st December 2009. Adjusted operating income amounted to 737 million euros and the adjusted operating margin stood at 4.0%.

Net income, group share, stood at 980 million euros after a 1.03 billion euro capital gain on Amadeus (-868 million euros at 31st December 2009). Net income restated for non-recurrent items, of which the Amadeus capital gain, stood at 72 million euros against a loss of 755 million euros a year earlier. Net income per share stood at 3.32 euros and net diluted income per share at 2.71 euros (-2.95 euros at 31st December
2009 both diluted and undiluted).

Operating cash flow close to 1 billion euros

Investments net of disposals amounted to 890 million euros at 31st December 2010 (961 million at 31st December 2009). Operating cash flow was positive at 974 million euros and free cash flow stood at 277 millions euros of which 193 million euros in cash from the Amadeus operation. The group has cash of 4 billion euros as well as credit lines of 1.3 billion euros.

Shareholders’ funds amounted to 7.03 billion euros, up 1.61 billion euros on 31st March 2010 under the effect of the net result at 31st December 2010 and the revaluation of the group’s stake in Amadeus. Net debt stood at 6.06 billion euros (6.22 billion euros at 31st March 2010). The gearing ratio1 stood at 0.86 (1.15 at 31st March 2010).

Outlook for the Full Year

The Third Quarter was strongly disrupted by numerous air traffic control strikes in France as well as heavy snowfall. Since Christmas, the adverse weather conditions in North America have led to the closure of several airports on the East coast. Finally we are seeing the emergence of security issues in a number of Air France-KLM destinations, notably the Sahel Region (Niger, Mauritania, Mali) for a number of months, Ivory Coast since mid-November, and more recently, Tunisia and Egypt. As in the Third Quarter, the combination of these circumstances will have negative repercussions on the quality of unit revenues in the Fourth. Moreover, January and February unit revenues have been affected by the overcapacity situation created by the increase in offer by our competitors during the Winter season.

In this context, we maintain an objective of a positive operating result for Full Year 2010-11, but it will be below our previous target of over 300 million euros.

The numerous one-off events which have affected the current year (volcano, weather disruptions, air traffic control stoppages and geopolitical events) do not call into question the structural recovery achieved by the group in 2010; the improvement in ex-fuel cost is in line with our forecasts, our ability to adapt the network to geopolitical constraints remains, and current forward bookings from mid-March and subsequent months are of good quality.

Photo: An Air France A320 landing at Paris-Charles de Gaulle. Photographer: Philippe Delafosse

Reduced Q3 loss for Ryanair

In a press release issued today, Ryanair announced a slightly reduced Q3 loss of €10m (down from a Q.3 loss of €11m last year).  Total revenues grew by 22% to €746m, as traffic increased 6% to 17m and average fares rose by 15%.  Unit costs increased by a similar 15% due to a 14% increase in flight hours, as average sector length rose by 7%.  Excluding fuel (which is up 37%), unit costs rose by 8%.

The unabridged press release in full:

Summary Table of Results (IFRS) – in euro

Q3 Results	Dec 31, 2009	Dec 31, 2010	% Change
Passengers	16.0m	17.0m	+6%
Revenue	€612m	€746m	+22%
Adjusted Profit/(Loss) after Tax	(€10.9m)	(€10.3m)	+6%
Adjusted Basic EPS(euro cent)	(0.74)	(0.69)	+7%

Announcing these results Ryanair’s CEO, Michael O’Leary, said:

“This small Q.3 loss of €10m is disappointing, as we were on track to break even, but earnings were hit by a series of ATC strikes/walkouts in Q.3, compounded by a spate of bad weather airport closures in December.  The scale of these disruptions is evident by the fact that we cancelled over 3,000 flights in Q.3, compared to over 1,400 cancellations during the previous fiscal year.

With constrained capacity growth, we delivered impressive scheduled revenue growth, with traffic up 6% and average fares rising 15%.  On top of this ancillary revenues grew by 20%, considerably ahead of our 6% traffic growth.  It would appear that the shorthaul fuel surcharges imposed by many of Europe’s flag carriers, allied to the high and rising fares charged by some of our not so low fare competitors, is creating opportunities for Ryanair to grow, even during the Winter period, at slightly higher fares.

Unit costs increased by 15% in the quarter due to a 14% increase in flight hours, (as average sector length rose by 7%), a 37% increase in our fuel bill, and the impact on ownership costs  of sitting up to 40 aircraft on the ground during the Winter months.  Despite a 14% increase in flight hours during the quarter we delivered strong performance on costs as staff costs rose by 9%, and airport and handling charges increased by 6%.  Ryanair’s relentless focus on costs will continue.

Although oil prices have risen significantly in recent months, Ryanair continues to benefit from a favourable fuel hedging strategy.  While current spot prices are approx. $890 per tonne, we are 90% hedged for Q.4 FY’11 at $750 per tonne, and 80% hedged for FY’12, at an average price of $800 per tonne.  We have also hedged 70% of our dollar requirements for FY’12 at an average rate of €/$1.34 compared to €/$ 1.40 for FY’11.

We are surprised that the widespread negative commentary on the Irish economy has been allowed to cloud some analysis of Ryanair’s future growth and profitability.  Some commentators misunderstand that over recent years, due to high airport costs at Shannon and Dublin, as well as rapid capacity growth in lower cost markets like Spain and Italy, Ireland has fallen from over 20% of Ryanair’s originating traffic to less than 10% in the current year.

Ryanair has little exposure to the Irish economy.  We do believe that Irish tourism is now ripe for growth given the increased competitiveness of Irish hotels, guest houses, restaurants and golf clubs, but this potential will not be realised until the Government travel tax is abolished and the high cost DAA airport monopoly is broken up and replaced with competing terminals and airports.  We hope the incoming Irish Government will work with Ryanair to exploit the potential for tourism and job growth by returning to the low cost access policy which drove Ireland’s tourism growth in the 1990’s.

The extraordinary scale of ATC and weather cancellations during the third quarter brings renewed focus on the unfair and discriminatory EU261 regulations.  Urgent reform of these regulations is vital.  It is inequitable to force airlines to pay for right to care or compensation in circumstances where widespread flight cancellations are caused by ATC strikes, or by airports failure to keep their runways open during periods of adverse weather.  It is inequitable that airports enjoy a boost to their restaurant and retail revenues from stranded passengers when their runways close, yet the airlines are obliged to pay for meals, drinks and hotels, when these cancellations are outside of our control.  It is discriminatory that the EU regulations for competing train, ferry and coach operators, exonerate these transport providers from liability during force majeure cases, yet they oblige airlines to pay these right to care costs in similar circumstances.  Airlines should not be liable for cancellations and delays that are outside of their control.  We believe the EU261 regulations are unlawful and we look forward to challenging these unfair and discriminatory regulations in the European courts.

Our outlook for Q.4 and the remainder of FY.11 remains largely unchanged.  Easter does not fall in the current Q.4, which makes the comparatives challenging.  We expect traffic and average fares to continue to benefit from a better mix of new routes and bases, and competitor fuel surcharges (which in many cases exceed Ryanair’s lowest fares).  We expect our unit cost performance in Q.4 to be marginally better thanks to the launch of new routes in Feb and March which will reduce the number of grounded aircraft by comparison with Q.3.  Accordingly, we are now confident that our Q.4 and full year results will be towards the upper end of our previously guided range of a Net Profit after tax of between €380m to €400m after tax”.

First Class to Vegas

British Airways is introducing First class on its popular Las Vegas route next summer (from June 1, 2011) and increasing capacity by 18 per cent, according to a press release.

The direct daily flight from Terminal 5 at Heathrow was launched a year ago and operated by a three-class Boeing 777. A four-class B747 offering BA’s First cabin will replace it.

By moving to a B747, BA will be sending an additional 124 seats on every round trip. Each flight will now have 14 seats in First.

Richard Tams, British Airways head of marketing and sales, said: “Our direct service from London Heathrow to Las Vegas has been one of our most successful launches in recent years.

“It is one of the star performing routes on the BA network and such a winner with our customers that we are increasing capacity by 18 per cent from next summer and offering that extra touch of luxury.”

New SAS president and CEO

The Board of Directors of SAS AB has appointed Rickard Gustafson as the new President and CEO of SAS (Scandinavian Airlines System). Gustafson is 46 years old and currently the CEO of the insurance company Codan/Trygg-Hansa, according to a press release issued by the airline.

“Rickard Gustafson is an experienced leader, with extensive international experience, who has demonstrated that he can generate good results. As the current CEO of Codan/Trygg-Hansa, he has Nordic responsibility, and also has broad experience of strategy development, marketing and process optimisation from both Codan/Trygg-Hansa and GE Capital. The entire board agrees that Gustafson is the right person to take on the challenges in SAS, and to continue the implementation of the Core SAS strategy and ensure profitable growth,” says Fritz Schur, chairman of the SAS Board.

Rickard Gustafson is a graduate engineer, with a focus on industrial economy, from the Institute of Technology at Linköping University. He is married and a father of two.

“SAS is a special and unique Scandinavian company. A great deal has been accomplished in recent years to create a platform for the future. I look forward to developing the company further, together with all employees at SAS,” says Mr. Gustafson.

The current President and CEO, Mats Jansson, will leave his position on October 1, 2010. Rickard Gustafson will assume his position at SAS not later than March 2011. Until then, the Deputy CEO, John Dueholm, will be acting President and CEO.

Photo: Mr. Rickard Gustafson, appointed SAS’ new president and CEO (photo from SAS)

Airline Sustainability Indexed

Air France-KLM has been confirmed Leader for sustainable development for 2010 and remains in the two Dow Jones Sustainability Indexes, DJSI World and DJSI Europe, for the sixth year running, according to a press release issued by the group.

Since it was set up in 2004, the group has been confirmed every year as leader in the air transport sector and has been recognised, for the second time, as being the most responsible company, super sector leader, in the “transport and leisure” sector.

“With this recognition, which is an honour for us, Air France-KLM is illustrating its willingness to assume its social and environmental responsibilities. We will continue to be the benchmark for sustainable development in our industry: an ambition which measures up to the important place we occupy in the global air transport industry,” Pierre-Henri Gourgeon, CEO of Air France-KLM, declared.

“I am proud that we have been able to hold on to this position, despite the difficult times we are going through. It is a terrific achievement — proof positive of the successful collaboration between our two companies. We achieved this together and it is a fantastic acknowledgement of everyone’s hard work” Peter Hartman, KLM President & CEO, comfirmed.

The DJSI World groups 10 percent of the leading companies in terms of sustainable development, among 2500 companies in 22 countries worldwide.

Both the DJSI World and DJSI Europe indexes select the leading companies in this field, following a review process conducted by the Swiss group SAM (Sustainable Asset Management Indexes GmbH).

Air France-KLM is also part of the extra-financial indexes Aspi Eurozone, Ethibel Sustainability Index (ESI) Global Excellence and FTSE4Good.

Air France-KLM’s sustainable development report for the financial year 2009-10 can be consulted here.

‘À la carte catering’ pilot

KLM Royal Dutch Airlines will launch a pilot project offering à la carte catering on board. Passengers travelling in Economy Class will be able to choose from four dishes on flights from Amsterdam to Bangkok and Taipei, Dubai, Cape Town, Singapore and Denpasar. Orders can be placed when checking in online. The pilot will run until the end of August this year,according to a press release from the airline.

Customers will be able to choose from meals including a healthy Japanese meal; an Indonesian rice table; a Bella Italia meal, Italian dishes, and a Sustainable dining meal of sustainable, organic chicken, vegetables and cheese. The meals can be ordered and paid for when checking in online between 30 and 24 hours prior to departure. They will cost €15 per dish.

“The wishes and choices of our customers are key. We will be testing them during the pilot project. Our aim is to align our products even more closely to what different customers want,” said Erik Varwijk, Executive Vice President of KLM Commercial.

Air France back to normal

Following the French and European authorities’ decision to progressively lift air traffic restrictions in Europe, Air France can now guarantee a nearly normal flight schedule throughout its network today, Wednesday 21 April, according to a press release issued by airliner.

Since resuming its operations at both the Paris and French provincial airports, Air France has already transported over 40,000 passengers back to France.

Air France is doing all it can to help repatriate all its stranded passengers back to France and Europe.

Photo: An Air France A320 landing at Paris-Charles de Gaulle. Photographer: Philippe Delafosse

KLM Resumes Intercontinentals

KLM Royal Dutch Airlines expects to resume operating all its intercontinental (ICA) flights to and from Schiphol today. Every effort will be made to restore the schedule, operating according to the original flight times as far as possible, according to a KLM press release.

Several restrictions still apply to the flight schedule for Europe. A number of airports are still closed and flights are restricted to daytime hours at others. KLM expects to achieve a great deal today in restoring normal air traffic and operating around 70 percent of its scheduled flights within Europe. From 14:00 hours (CEST), KLM will nonetheless operate a number of its previously cancelled flights to the United Kingdom. The same applies to flights to several Scandinavian destinations as well. Only 75 passengers of the original group of KLM passengers stranded at Schiphol since Thursday, 15 April now remain.

KLM will be making every effort to resume scheduled flight operations as soon as possible, transporting passengers and cargo to their destinations worldwide. Capacity will be increased wherever possible. For example, an extra flight will be operated today to Curaçao and Bonaire, which will be expected to return to Amsterdam tomorrow.

For the exact flight times and information on specific destinations, please refer to the KLM website at www.klm.com. Given the exceptional circumstances, a special page has been created with arrival and departure times. KLM advises passengers to consult the website for information about departing flights before travelling to Schiphol.

KLM ready for take-off

Sunday evening, KLM operated two commercial flights: One to Bangkok and Taipei and another to the Arab emirate of Sharjah, the airline reports in a press release.

During the flight, and during the technical inspection that followed, nothing out of the ordinary was found in either aircraft. Both aircraft underwent inspection immediately after landing.

The inspection data has been passed along to the Inspectorate for the Dutch Ministry of Transport and Public Works. KLM CEO Peter Hartman hopes that the airline will receive rapid clearance to restart at least part of its operations and transport its passengers to their destinations.

The first two flights carried no passengers, but transported cargo and flight crews. Dutch authorities have permitted KLM to fly only on these routes.

Passengers are advised not to go to Schiphol Airport, but to check the website for the airline with which they are flying for the latest information.

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