Despite ‘Challenging Year,’ IAG Astounds

Madhu Unnikrishnan

March 2nd, 2020

  • Put aside the Covid-19 shock and Heathrow expansion drama for just a moment, to properly recognize the astoundingly strong performance that British Airways achieved last year. Its 14% operating margin even bested Delta by a few fractions.

    And during just the supposedly offpeak fourth quarter, in which BA faced residual demand effects from a Q3 pilot strike, operating margin reached an unearthly 16%, a figure topped by only a handful of much smaller low-cost carriers. This is not a fluke. BA posted similar numbers in each of the past three years, leveraging its supremely privileged airport slot portfolio in London, still the world’s largest airline market.

    Almost as profitable, meanwhile, is Aer Lingus, whose 2019 operating margin was 13%. Iberia, one of the great turnaround stories of the 2010s, wasn’t far behind with a 9% posting. Its low-cost compatriot Vueling did even better at 10%. Together with Level, a young longhaul LCC off to a rocky start, these strongly profitable airlines form IAG, whose empire stands to further expand with the addition of Spain’s Air Europa later this year, if regulators allow.

    As a whole IAG’s numbers reflect the excellence of its four main constituent airlines. Its operating margins for Q4 and all of 2019 were 12% and 13%, respectively, far better than what Air France/KLM produced, and likely far better than what Lufthansa produced (it hasn’t yet reported). IAG’s Q4 revenues grew 3% y/y on 2% more ASK capacity. Operating costs also rose 3%, with fuel costs up 8%.

    CEO Willie Walsh, in his last weeks at the helm before retiring, did say 2019 was a more challenging year than 2018, with higher fuel costs, for one, convincing the group to scale back capacity expansion on multiple occasions. IAG doesn’t have nearly as much cargo exposure as Air France/KLM or Lufthansa but nevertheless suffered as cargo revenues dropped 10% y/y last quarter.

    More importantly, BA felt the impact as United and Delta invested heavily in their London Heathrow premium offering. Iberia had to contend with a rough Latin American economic backdrop, while many of Vueling’s frustrations were operational in nature — it was unable to optimize aircraft utilization because of severe air traffic control shortcomings, most importantly in its home market Barcelona.

    Creating Level was a defensive move against growing longhaul LCCs like Norwegian, which have since pulled back. Early signs of success on Level’s Barcelona-Buenos Aires route encouraged expansion, but flying from Paris proved a disappointment, and Buenos Aires itself suffered an economic meltdown. A subsequent route to Chile suffered amid national protests. IAG did say Tokyo was a strong market, both at Narita and Haneda airports. It also singled out strength in India and in Saudi Arabia’s capital Riyadh.

    But the group ultimately lives and dies by the transatlantic market, with the North Atlantic alone generating about 30% of total ASK capacity. It’s certainly BA’s bread and butter. And it’s even more true of Aer Lingus, whose 2019 peak season was hurt by A321 LR delays. Iberia is dominant on the South Atlantic, though not as dominant as it would be if the Air Europa deal goes through.

    So now the coronavirus scare, which Walsh says is hurting not just Asian markets but shorthaul Europe as well. It’s redeploying longhaul capacity to healthier markets, including places where rivals have perished or are struggling, i.e. India and South Africa. In the meantime, Heathrow’s third runway saw another setback last week (see airports section).

    More encouragingly, Walsh says about half of IAG’s cost base now varies with aircraft production, which enables more flexibility during times of market distress. After the B737 MAX had already been grounded, IAG signed a tentative mega-deal with Boeing for up to 200 units. After receiving 45 new planes in total last year, many more are on the way, both widebody and narrow. They include B777-9s, B787-10s, A350-1000s, and A321 XLRs.

    Joint ventures with American, Finnair, Japan Airlines, Qatar Airways, and most recently China Southern are important value drivers. So, it believes, are its aggressive NDC distribution efforts. It welcomes the new American-Alaska and American-Qatar alliances.

    And Brexit? In the short-term, it might be drumming up more business for BA as lawyers, consultants, bankers, and politicians descend on London to address the new reality. All eyes are now on the virus impact. But IAG insists that the worse things get, the more airline failures there will be.

SAS Losses Swell to $91m

  • Wintertime is never fun for Scandinavia’s SAS. And that’s especially true during the carrier’s fiscal first quarter, encompassing the wintry months of November, December, and January. The period was even less fun than usual this time around as net losses swelled to $91m and operating margin worsened to negative 8% — it was negative 6% for the same three months a year earlier.

    It was the carrier’s worst fiscal Q1 in fact, since the winter of 2014/15. More importantly, it contributed to a disappointing year for SAS, despite a pretty good summer peak. For the 12 months that ended in January, which covers most of calendar year 2019, it earned an operating margin of just 2%, down from 5% a year earlier and 6% the year before that.

    The results are particularly frustrating in light of the rather strong demand conditions SAS currently enjoys, alongside unusually favorable supply conditions. For one, Europe faces a temporary aircraft shortage due to the MAX grounding and NEO delays. And even more helpfully for SAS, its closest rival Norwegian is slashing capacity. Looking at current calendar Q1 schedules (Cirium), seat capacity for airlines other than SAS is down 9% y/y in Stockholm, 2% in Copenhagen and 1% in Oslo.

    Then why did SAS have such a lousy 2019, and a lousy November-to-January quarter? Isn’t the favorable supply and demand balance helping? What about all the reforms SAS has undertaken in recent years: The creation of a lower-cost unit based in Ireland, the introduction of maximum density A320 NEOs, improvements to the Eurobonus loyalty plan, and so on? Unfortunately, the positive effects from these reforms face strong countervailing headwinds, including the negative revenue and cost implications of Scandinavian currency weakness.

    SAS also faces higher labor costs after a debilitating pilot strike last spring. Labor costs rose 7% y/y last quarter, despite a mere 1% increase in ASK capacity; another reason for this is a temporary bump in training costs as pilots transition to A320 NEOs and A350-900s (the first of which SAS began flying last month, to Chicago). Management, furthermore, acknowledged that demand from the Nordic region has weakened for several reasons, including the region’s currency depreciation and, yes, concerns about the environment, expressed in the flight-shaming movement.

    The airline previously downplayed any significant impact from flight shaming. It’s true that Scandinavia’s economies aren’t growing much, with Norway in particular suffering from the downturn in oil markets (that’s a big reason why in turn, its currency is so weak). Even so, unit revenues rose last quarter, and key longhaul routes to the U.S. seem to be doing well.

    Asia, of course, is now in crisis, though SAS says it will lose just $21m in revenue from the suspension of Beijing and Shanghai flights during January and February. If still not able to fly to greater China during the peak spring and summer, of course, the impact will be greater. For now, overall forward bookings look positive, though the situation for airlines around the world is changing by the day. SAS affirmed its expectations of an operating margin this fiscal year of between 3% and 5%, including another y/y decline in margins for the current February-to-April quarter.

    Obviously, things could be worse if the Covid crisis worsens. Either way, SAS is determined to undertake yet another big reform involving the sensitive area of labor costs. As first disclosed last year, it’s looking to create a separate division to fly a sub-fleet of small narrowbodies it wants to buy, using crews with less generous work contracts. That triggered early outrage among some workers, though SAS did secure an agreement with Danish unions. The company’s message: We’re not trying to offshore these jobs; they’ll in fact be based in Scandinavia.

    What planes, specifically, does it want? The candidates are A220s and E2-Ejets, to replace A319s and B737-700s, though executives expressed some unease with GTF engine issues both planes are experiencing.

    That aside, SAS is separately launching new service to Tokyo Haneda, winning major corporate and tour operator deals, putting a big emphasis on punctuality, and planning to grow ASKs about 5% this year, mostly driven by aircraft upgauging.

    SAS insists that despite a string of poor financial results, its cash balance remains healthy. But that doesn’t negate its longterm concerns about all the aircraft European carriers have on order, never mind its short-term concerns about the coronavirus.

Air New Zealand Woes Mount

  • Well before the current virus crisis, challenges were mounting for Air New Zealand. Demand began softening early last year. The New Zealand dollar lost value against its U.S. counterpart. Hong Kong became a problem market. Cargo markets weakened. Overcapacity burdened trans-Tasman markets. Rolls-Royce engine problems on B787s caused significant operational disruption. Airport and air navigation fees were on the rise. This prompted the airline to take mitigating actions, like trimming capacity and stimulating domestic leisure traffic with a new set of fares.

    The efforts helped, as did robust corporate demand on domestic routes and Pacific Island leisure routes (excluding Samoa during the island’s measles outbreak). New routes like Chicago, Seoul, and Taipei performed well. Demand to Japan got a boost during the Rugby World Cup. Even South American flights, despite ongoing economic challenges, were “steady” during peak periods. A321 NEOs helped a lot on trans-Tasman routes to Australia.

    Nevertheless, Air New Zealand saw its calendar H2 operating margin slip to 6%, a level of earnings with which new CEO Greg Foran is not satisfied. Margin was 6% for the entire calendar year 2019 as well. H2 revenues rose 3% y/y, roughly in line with ASK capacity growth. But operating costs increased 8%, even with fuel and labor under control. Depreciation was one of the big inflation drivers.

    Now comes the Covid-19 demand shock, which the carrier thinks could erase about $20m to $50m from earnings this year. Forward bookings are weakening, especially on shorthaul domestic leisure and Tasman routes, in addition to Asian routes. North America routes, however, are seeing some new demand from Europe-bound travelers preferring to connect through cities like Los Angeles, San Francisco, Vancouver, Houston, or Chicago rather than an Asian hub. Pacific Island routes are holding up well for now too.

    Management is reacting by temporally suspending flights to China and Korea, cutting more shorthaul capacity, and moving B787s from Asia to Honolulu and Bali. That’s as it continues to cut costs, add A320/21 NEOs, take B787s with more premium seats, increase capacity to markets like Chicago, and prepare for its first B787-10s in 2023.  

Virgin Australia Cuts Capacity, Again

  • Struggling Virgin Australia reported a lowly 3% operating margin for the six months to December. But that wasn’t enough to prevent a slightly negative operating figure for the entirety of calendar year 2019.

    Virgin’s struggles are particularly stark in light of how well Qantas is doing domestically, where Virgin produces most of its capacity. The LCC does have a money-losing, sub-scale international business, which incurred a negative 7% operating last half. An ill-timed jump into the Hong Kong market certainly didn’t help. Even domestically though, its operating margin was a mediocre 5% (Qantas mainline during the same six months earned 14%).

    Virgin also owns the ultra-LCC Tigerair, which eked out a 1% operating margin in the half. The group, fortunately, was cushioned by its highly profitable Velocity loyalty program, of which Virgin once again has full ownership control. Groupwide, calendar H2 revenues rose 2% y/y while operating costs rose 4%, all on 1% less ASK capacity.

    Now about a year on the job, CEO Paul Scurrah is cutting capacity again, by about 3% in the fiscal year that ends in June. He’s already deferred B737-MAX deliveries, upsized to some MAX-10 orders, and announced 750 job cuts. Virgin is quickening removal of seven A320s from Tiger’s fleet, on top of two removals announced in November. It’s transferring two mainline international B737s to Tiger, thus giving it a single Boeing fleet type. Virgin is also removing F100s, ending its Hong Kong routes, trying a new route to Tokyo Haneda from Brisbane, closing Tiger’s Brisbane base, closing five of Tiger’s domestic routes, and undertaking a widebody fleet review.

    Sure enough, it sees demand weakening across the network, especially on leisure routes and Tiger’s routes. The Covid-19 crisis, it estimates, will erase $35m to $50m from earnings this half.

    Virgin, remember, experienced a messy divorce with Air New Zealand and more recently lost business due to brushfires in Australia. Scurrah says he’s only in the “early stages” of transitioning to a lower cost base. But patience is surely running thin for the carrier’s shareholders, including Singapore Airlines, Etihad, two Chinese conglomerates and Richard Branson’s Virgin Group. Delta, though not a shareholder, is a joint venture partner. 

AirAsia Improves; AirAsia X Drops Into Red

  • The accounting was messy as usual. But under the haze stood a strongly improved Q4 operating result for AirAsia. After heavy losses in the final quarter of 2018, the carrier’s Malaysian, Indonesian, and Philippine units this year combined for a Q4 operating margin of about 10%. Thank strong double-digit revenue growth, strong ancillary growth in particular, a 1% y/y decline in fuel costs, changes to its pricing strategy, profits at its fast-growing Teleport cargo business, distress at rival ASEAN carriers, and progress lowering non-fuel unit costs as more NEOs arrived — AirAsia in fact started flying its first A321 NEO in November.

    The group reports results for AirAsia Thailand separately; it too improved performance y/y but didn’t quite break even at the operating level. Problems in the Thai market include a strong local currency that hurts inbound tourism, and rather heavy exposure to the badly distressed Hong Kong and Macao markets.

    AirAsia India improved Q4 operating margin to negative 6%. AirAsia Japan, with just three routes, incurred a $10m net loss (it gave no other details about Japan). Across the entire group, AirAsia grew ASK capacity 8% last quarter. But the bulk of its expansion came in Indonesia, the Philippines, and India. Growth was just 1% in Malaysia, its biggest market. And Thailand, it second biggest, saw a 1% ASK contraction.

    This year got off to an unwelcome start as AirAsia was cited as an alleged perpetrator in a corruption case against Airbus. The airline vigorously denies the allegations. A more acute worry now, of course, is the Covid crisis, which is hitting the ASEAN region hard. With lots of routes to China, the carrier expects its Malaysian capacity to decline by 10% y/y this quarter, while its Thai capacity will drop 23%.

    Management at the same time complains about irrational pricing by competitors. But it retains confidence in a long-term vision to build auxiliary businesses — most importantly financial services, cargo, and online travel retailing — making use of the airline’s copious amounts of data. It says its digital strategy is “gaining momentum” with moves like teaming with a company called Kiwi to sell other airline flights on its platform.

    In the short-term though, there’s no hiding the pain AirAsia will experience from the Covid shock. Along with cutting capacity, it’s aggressively discounting fares to fill planes, hoping to recoup some revenue with ancillary sales. The group is imposing a hiring freeze and renegotiating supplier contracts. 
  • AirAsia’s sister airline AirAsia X did not have a good Q4, meaning it enters the Covid crisis already in distress. Q4 is a peak period for the airline, but that didn’t stop operating margin from dropping into the red, from positive 2% a year ago to negative 1%. Reveues rose 4% y/y but operating costs increased 7%, well in excess of a 1% ASK capacity increase.

    Fuel costs helpfully declined 7%. But other areas of its cost base swelled, most importantly maintenance. The weak Malaysian ringgit also contributed to cost inflation. The airline, furthermore, experienced heavy Q4 losses at its Thai and Indonesian longhaul affiliates.

    In fact, all three AirAsia X operations — Malaysia, Thailand, and Indonesia — posted full-year 2019 operating losses, with margins of negative 3%, negative 8%, and negative 48%, respectively. AirAsia X and its longhaul LCC model has consistently lost money or at best earned small margins over the course of its 13-year lifespan. It’s now flying more shorthaul routes like Kuala Lumpur-Singapore, while moving into narrowbody A321 NEOs for routes less than six hours.

    For the longer routes it still plans to serve, the big bet is on A330 NEOs, the first of which recently began flying from Thailand to Australia. With the Covid crisis however, the airline is deferring A330 NEO deliveries. In the face of major demand loss on routes to China, Korea, Japan, and Australia, AirAsia X is also cutting fares and suspending three unprofitable routes: Tianjin, Lanzhou, and Jaipur. Ancillary revenues, which are typically less price sensitive, helpfully account for about a quarter of the carrier’s revenues.

    But there’s no escaping the fact that 30% of AirAsia X’s revenues come from China, a market experiencing a 9/11-like demand shock. If that weren’t enough, the carrier also complains of overcapacity in the Japanese market, “irrational competition,” and an increase in Malaysian passenger taxes. This month by the way, it’s already pre-cancelled more than 600 flights.  

Red Ink at Bangkok Airways, Nok

  • Thailand’s economy is heavily dependent on Chinese tourism, which even in 2019 experienced periods of declines, notably in the year’s first half. Ultimately, arrivals from China to Thailand grew 4% for the year, which wasn’t enough to save Bangkok Airways from incurring a negative 2% operating margin over the full 12 months.

    It was a year also challenged by a strong local currency, which made visits to Thailand expensive for many travelers. Europe, an important tourist source market, sent fewer travelers in 2019. The Thai economy, meanwhile, grew less than 2% for the year, decelerating due to export weakness in the context of U.S.-led trade wars. Overall, tourist arrivals did rise 6% in 2019, with a boost from fast-growing markets like India and Russia.

    But however buoyant the traffic demand, airlines in the country faced what Bangkok Airways described as “highly intense competition.” The self-described “boutique airline,” which also runs airports and sells services like ground handling and catering, has just a 10% share of the Thai domestic market measured by passengers carried. It competes with Thai AirAsia, Thai Airways, Thai’s sister airline Thai Smile, Nok Air, Thai Lion Air, and Thai VietJet.

    No wonder why in just the fourth quarter of 2019, its operating margin dropped to negative 12%, from negative 9% in 2018’s Q4. Bangkok Airways cut ASK capacity 2% y/y (and 6% domestically). But revenues fell 5%, exceeding a 2% decline in operating costs. Not even cheaper fuel could help much.

    As recently as 2016, Bangkok Airways was a highly profitable airline, earning a 14% operating margin that year. It did so with a unique business model, in which roughly half of its airline revenue comes from flying tourists to the airport it owns and runs in Samui, a beach resort. Its busiest market is Bangkok’s main airport though (Suvarnabhumi), where it connects inbound visitors from across the world to other cities in Thailand and neighboring countries (most importantly Cambodia, Myanmar, Vietnam, and Laos).

    About 6% of its sales come from within China. Almost 30% comes from Europe and the Middle East. Naturally, with so much of its business derived from foreign points of sale, Bangkok Airways is big on marketing abroad and codesharing with other airlines — its latest codeshare partner is Turkish Airlines, and it’s even working with Thai Airways. Last year, it signed on to install the Amadeus Altea passenger service system.

    But last week, management was focused on crisis management, announcing plans to trim capacity, cut executive pay, and impose unpaid time off. 
  • Bangkok’s rival Nok Air, which flies from Bangkok’s low-cost airport (Don Muang), suffered is sixth consecutive year of red ink in 2019. More importantly, it was the LCC’s fifth consecutive year of downright horrible losses, this time in the form of a negative 13% operating margin. Well, at least it was better than the year prior’s negative 17% drubbing.

    That’s about the nicest thing one can say about an airline that somehow manages to survive by shrinking its fleet and cutting costs. Its Q4 operating margin was negative 9%. And operating margin for its longhaul joint venture with Singapore Airlines, called NokScoot, was negative 19% for Q4 and something similar for the full year. Nok Air increased Q4 ASK capacity 4% y/y, leading to a 2% revenue gain, concurrent with a 6% drop in operating costs. Hence a y/y margin improvement.

    Nok has experienced near-death experiences before, most recently just before the global financial crisis when oil prices reached stratospheric levels. Before that — just months after launching in fact — it faced the 2004 tsunami that devasted Thailand. Will it survive the Covid-19 crisis?

    Nok Air was originally a creation of Thai Airways, which retains a minority ownership stake. 

Avianca Strengthens After Financial Restructuring

  • In the second quarter of last year, Colombia’s Avianca began a major financial restructuring to save itself from a possible bankruptcy filing. That effort is now complete, having fortified its balance sheet with, among other things, new capital from United.

    The job now turns to lifting profit margins, which haven’t been terrible in recent years, but nor have they been great. Typically, Avianca earns annual operating margins between 6% to 7%, though the figure slipped to just 4% in 2019, highlighting the urgency to reform. The final quarter of 2019, coinciding with strong seasonal demand, saw the airline earn a near-9% operating margin, up a bit from the same quarter a year ago.

    Revenues declined slightly less than 11% y/y, while costs declined slightly more than 11%. Those declines reflect a retrenchment in which Q4 ASK capacity shrank 7%. Avianca most definitely enjoyed the fruits of cheaper fuel, with outlays falling 10%. To ensure longterm margin gains, however, management is banking on initiatives like new branded fares and the densification of A320s from 150 seats to 174.

    Those are two elements of the Avianca 2021 turnaround plan, whose highest-potential project is a joint venture with United and Copa. Work has stalled while Avianca undertook its financial reprofiling. But the three carriers will soon apply to the U.S. DOT for antitrust immunity. In the meantime, Avianca is forming looser codesharing partnerships with Gol, Azul, and TAP Air Portugal.

    Even as it axed 25 unprofitable routes and greatly downscaled its Lima operations, growth in Bogota continued. It’s expanding its Bogota links to Brazil, for example, part of a plan to create a more robust connecting hub. Currently, about 35% of Avianca’s Bogota passengers are connecting. It thinks that number could go as high as 50%.

    Another key tenet of Avianca’s reforms: Growing its profitable LifeMiles loyalty plan. It recently launched a new Express-branded unit as well for domestic turboprop flying. It’s still taking A320 NEOs though fewer than it originally ordered. E190s are leaving. Brand building is important too, especially given raw memories of an ultra-long pilot strike in 2017.

    The Avianca brand also incurred some reputational damage when Avianca Brasil, though a separate company from Avianca, fell apart. The same thing happened with Avianca Argentina.

    This quarter, the company expects operating margin to be between 2% to 3%, which should put it on track to earn 6% to 8% for the full year. It’s surely mindful of the Covid-19 outbreak but sees no demand destruction yet — it doesn’t fly to Asia or even Italy. It does see some overcapacity on European routes, however, along with lingering cargo weakness.

Volaris, VivaAerobus Report Strong Quarters

  • To the north in Mexico, Volaris triumphantly pronounced one of the all-time great quarters in airline history. In fact, of all the airlines that have so far disclosed Q4 operating margins, Volaris showed the second highest figure, trailing only the supernatural 26% that Gol achieved.

    The Volaris figure? 20%, which brought its full-year 2019 figure to almost 13%. This is an airline, remember, that lost money in 2018 — its operating margin then was negative 3%. Last quarter’s cheaper fuel, in which outlays rose 3% y/y despite 15% more ASK capacity, only begins to tell the story of the carrier’s turnaround. Total operating costs rose only 9%, while revenues rose an extraordinary 23%. A stronger Mexican peso helped.

    The fact that Volaris faces no direct airline competition on 40% of its routes helped. The rapid growth in family-visit traffic, the airline’s core market, helped. Strong demand during the Thanksgiving and Christmas holidays helped. “Solid traffic demand” on cross border U.S. routes helped. Strong growth in ancillary revenues helped. Positive unit revenue trends for its Central American unit helped. The purchasing power it enjoys as part of the Indigo investment group helped. The distress its rival Interjet is experiencing helped.

    And importantly, Aeromexico’s MAX-related capacity contraction was a big help in taming an earlier supply glut. Volaris boasts of being the largest Mexican airline ever in terms of traffic carried. It also boasts of being the Western Hemisphere’s lowest-cost airline.

    Importantly, it owes much of its success to stealing market share from long-distance buses, with which it benchmarks its cost structure. It estimates about 6% to 8% of customers are first-time flyers, and around 25% first obtain bus quotes before purchasing a Volaris ticket. In that sense, it can grow capacity far in excess of Mexico’s lethargic GDP growth and still earn a 20% operating margin.

    In 2007, 24m passengers flew within Mexico. Last year that number was 53m. The international market, meanwhile, roughly doubled to 48m, stimulated by open skies agreements and aggressive LCC growth. Volaris, Interjet, and VivaAerobus all placed big NEO orders.
  • Speaking of VivaAerobus, it too benefited from Interjet’s woes and Aeromexico’s missing MAXs. But not as much as Volaris. Viva, which had a better 2018 than its ultra-LCC rival, disclosed an inferior 2019, with operating margin at just 7%. That includes an 8% showing in the final quarter of the year, in which operating costs and ASK capacity increased 24% y/y.

    Revenues came close to keeping up, rising 23%. The airline ended 2019 with an equal number (18) of A320 CEOs and NEOs. Ancillaries accounted for an impressive 45% of total revenues.

    It’s increasingly open to more commercial complexity, working with travel agencies, for example, and fostering connecting traffic. It’s also offering charter flights to markets like Havana and carrying cargo.

    This year, Viva gets its first 240-seat A321 NEO, implying more aggressive capacity growth. It just added five new Chicago O’Hare routes, along with some new flying to Orlando and San Antonio.

    Will Viva do an IPO this year? Its shares are still privately held, but the time might be right to lure investors while Aeromexico’s plans are hobbled by a fleet shortage. Then again, the Covid-19 crisis might keep investors away from all airlines.

Headwinds for South Africa’s Comair

  • Even as its main competitor struggles to restructure in bankruptcy, South Africa’s Comair faces what it describes as “strong headwinds.” The airline, which flies on behalf of British Airways while running a separate LCC called Kulula, suffered an unusual $4m net loss excluding special items for the final six months of calendar year 2019.

    Operating margin dipped just below breakeven, though its full-year margin was slightly in the black. Revenue growth in the half was just 3%.

    Comair has a long history of always making money, aided by profitable auxiliary businesses like training and airport lounges. But as CEO Wrenelle Stander explained to MoneyWeb, the airline was hard-hit by the MAX affair, both from an operational and financial perspective.

    Another big cost headwind stems from a switch to Lufthansa as its maintenance provider — it wasn’t happy with the reliability of South African Airways, its previous provider.  Stander estimates that South Africa’s airline market has about 30% more capacity than demand merits. She also laments the fact that SAA hasn’t paid Comair the court damages it owes from an antitrust case. But she thinks the airline can take advantage of SAA’s domestic capacity cuts once peak season arrives.

    Some of her other priorities include growing ancillary revenues, opening new regional routes, and increasing fleet utilization. 

Madhu Unnikrishnan

March 2nd, 2020