Airline Weekly - September 21, 2009
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Airline Weekly - September 21, 2009

Bless the Distress: Europe’s LCCs, like those elsewhere, are posting strong results in the downturn

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Cover Story

Bless the Distress: Europe’s LCCs, like those elsewhere, are posting strong results in the downturn

Like their counterparts everywhere else, low-cost carriers in Europe are enjoying the economic misery. Or so suggest their second quarter financial results.

The continent’s four largest LCCs to report Q2 results—Ryanair, Air Berlin, Norwegian and Vueling—collectively generated more than $200m of net profits from April to June, along with a double-digit 10% operating margin. That far exceeded their performance during the second quarter of 2008, the heart of the fuel crisis, when they collectively produced a net loss and barely broke even at the operating level. In addition, their combined Q2 profits this year exceeded losses from Q1, though that was not true for the more legacy-oriented Air Berlin by itself. For European LCCs, making more money in the summer than you lose in the winter is the name of the game—a game they seem to be winning.

The status of Europe’s other less transparent LCCs is less certain, but the signs are encouraging. London-based easyJet, which doesn’t publish quarterly income statements, nevertheless told investors in July that it still expects a pretax profit for its fiscal year that ends this month. Considering that it lost $150m during the first six months of the period (October 2008 to March 2009), the last six months (April 2009 to September 2009) have evidently been solidly in the black. A year earlier, easyJet lost $66m during its fiscal first half, which was dwarfed by a $186 net profit in the more seasonally robust second half. easyJet will present its full fiscal year results Nov. 17.

Privately owned Wizz Air, the largest LCC in Eastern Europe, also appears to be doing well. Its former chief LCC rival SkyEurope is now gone, while struggling legacy rivals like LOT Polish (ASKs down 11% y/y from January through June) and Malev Hungarian (down 15%) are shrinking. In 2008, the five-year old Wizz grew traffic by 40% to 8m passengers and now has 11 operating bases (including four in Poland and three in Romania). Better yet, its CEO recently said the airline earned its third consecutive profit last year, though he didn’t provide details. No wonder why he felt confident to order 50 more... (374 of 1496 words)

Also Inside this Issue:

An otherwise sleepy week in September was jolted by American’s big moves in the areas of financing, plane buying and network restructuring. When all was said and done, St. Louis lost a hub.

But will American lose an ally? Japan Airlines is still weighing offers from SkyTeam and counteroffers from oneworld. In the meantime, JAL’s getting ready for another round of massive downsizing.

The industry’s bound to see more of the same from other airlines if IATA’s forecasts are correct. It expects huge losses this year and doesn’t expect a revival anytime soon. True, IATA doesn’t count most LCCs as members, and that group seems to be doing just fine. And yes, IATA tends to overemphasize the bad to achieve its goal of getting governments to take notice and act. But the industry figures are what they are: international premium revenue down by as much as 40%, for example. Ouch.

Nevertheless, airlines are survivors, a few thanks to cost structures low enough to stay profitable even amid the revenue drought. And some by borrowing their way to tomorrow.

There are plenty of airlines selling stock, planes, subsidiaries and FFP miles too. And CEOs are also busy cutting jobs, routes, frills and perks. But the world isn’t all gloom. Carriers can still be found adding bold new routes (Jetstar’s going to China) or bold new products (US Airways’ new lie-flat sleeper suites, the downturn notwithstanding). And Virgin Blue may even place a big plane order.

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