Austrian Q3 shows big improvement

24th Oct 2006

An impressive third quarter result for Austrian Airlines suggests their current strategy of optimisation and consolidation is providing the company with a platform for profitable growth. Austrian’s Chief Executive Officer Alfred ?-tsch issued the following statement on the occasion of the publication of the quarterly report: “The 7.8% increase in traffic volume that we achieved in the first nine months of the year substantiates our strategy of positioning ourselves in the world’s strongest growth markets. This also enabled us to improve our operating result (adjusted EBIT) by EUR 24.1m, a 72.6% increase on the figure for the same period in 2005. Our cooperation with the Russian airline alliance AiR Union is extremely promising, and should allow us to continue building upon and further strengthening our current leading market position in Central and East Europe.


With the aim of achieving exclusively profitable growth in future, we must now consistently consolidate our route network - particularly in the area of long-haul - and production overall. As a consequence of the consolidation in the long-haul segment, respective personnel overcapacities will be reduced with social responsibility and the previously fragmented fleets of Austrian and Austrian arrows will be harmonised in accordance with their respective business fields.

The need to increase our productivity, flexibilisation and levels of efficient control over seasonality are being addressed as focus issues and highlighted throughout the Group. Optimisation of production and performance is urgent, and for me represents the common ground in the interrelationship between customers, owners and employees that is crucial for a successful future. The capital increase of around EUR 350 million that we intend to implement will give us the power to sharply accelerate the optimisation of the Austrian Airlines Group already underway, to invest in the quality and earning power of our Focus East strategy, and to strengthen the long-term capital structure of the company.

It will not be possible to achieve a balanced adjusted EBIT in 2006. Depending on other political and economic framework conditions, and subject to any potential restructuring measures, the annual result will be probably better than last year.”


Further details of the results are included here:

Improvement in operating result
The EBIT rose sharply in the third quarter, from EUR 11.8m to EUR 41.0m, an increase of EUR 29.2m. The EBIT adjusted for exchange rate valuations on the reporting date and profits from sales of assets also increased, from EUR 30.9m to EUR 38.7m. Despite the higher kerosene prices, the company managed to achieve a balanced EBIT in the first nine months. This represents an improvement of EUR 80.5m compared to the previous year. The adjusted EBIT rose to EUR -9.1m (2005: EUR -33.2m).

Due to the fact that revenue increased more strongly than operating expenses in the third quarter, the company reported a profit for the period of EUR 35.2m (2005: EUR -21.3m). The cumulative loss for the first nine months of 2006 improved from EUR -100.3m to EUR -25.8m.

Revenue and operating revenue increase
Flight revenue rose by 3.5% in the third quarter to EUR 713.3m and to EUR 1,872.2m (+10.0%) in the first nine months of the year. Operating revenue increased by 1.5% in the third quarter to EUR 759.6m, while cumulative operating revenue rose by 8.5% in the first nine months of 2006 to reach EUR 2,019.9m.

Expenses rise due to high fuel costs
Operating expenses decreased by 2.5% in the third quarter to EUR 718.6m. In the first nine months of the year, meanwhile, operating expenses rose to EUR 2,019.9m (+4.0%), slightly above the increase in production (as measured in available seat kilometers) of 3.2%. Expenses on materials and services rose by 9.9% on last year, due primarily to the dramatic increase in kerosene prices. Compared to last year, fuel expenditure rose by 10.2% in the third quarter to EUR 160.4m, and by 26.6% to EUR 414.4m in the first nine months of 2006. In the third quarter the crude oil price reached an historic high of over USD 78 per barrel. The average kerosene price in the first nine months of the year stood at USD 663 per ton, 18.5% above its level last year. The proportion of total cumulative expenditure before exceptionals accounted for by fuel expenditure has now increased from 17.3% to 20.6% in one year. The cost increases as a result of the oil price could only be passed on to passengers through surcharges to a limited extent. The increase in production, combined with our continuing restrictive staffing policy, enabled us to improve productivity. Personnel expenditure rose by 7.5% in the third quarter to reach EUR 133.9m, and by 6.6% to EUR 394.9m in the first nine months. Especially due to foreign currency devaluations, other expenses fell by 4.4% in the third quarter to EUR 41.0m and in the first nine months by 14.5% to EUR 132.7m.

Net cash flow from operating activities at last year level
Net cash flow from operating activities fell in the third quarter from EUR 74.7m to EUR 69.2m. The cumulative cash flow in the first nine months, at EUR 264.3m, was higher than the previous year’s figure of EUR 252.5m. Cash flow from investing activities in the first nine months of the year fell from EUR -182.6m in 2005 to EUR -19.6m, as a result of lower outflows for aircraft purchases and higher receipts from sales of aircraft and financial assets. Net cash flow from financing increased by EUR 203.7m compared to the previous year to EUR -238.7m. Cash stocks increased by EUR 6.0m against the balance sheet date as at 31 December 2005 to reach EUR 126.8m, EUR 23.9m above their value at 30 September 2005.
Market position continues to improve in focus markets
On scheduled services, the load factor in the third quarter stood at 78.1%, 2.0 percentage points down on the same period the previous year, while the cumulative load factor for the first nine months of 2006 rose by 0.4 percentage points. The number of passengers carried rose by 5.7% in the third quarter compared to the previous year to reach 2,553,044, while the cumulative figure for the first nine months rose by 10.3%, to 6,867,653. Capacities previously used by Lauda Air in the charter segment were partially incorporated into scheduled operations. Particularly worth a mention here is the significant increase in Business Class passengers on long-haul. Overall, revenue in the scheduled segment over the first nine months increased from EUR 1,484.7m to EUR 1,645.9m (+10.9%). The EBIT improved in the report period to EUR -3.0m (comparison period 2005: EUR -71.6m).

In the charter segment, approx. 1.5 million passengers were carried in the first nine months of the year. As a result, passenger volume remained stable compared to the previous year despite a clear decrease in production. The third quarter saw a 10.8% reduction in availability. The number of flights operated was reduced, particularly in the long-haul segment, although this reduction was partly a result of the transfer of individual routes into the scope of the scheduled segment. Despite the lower production, revenue in the charter segment in the first nine months remained stable at EUR 226.3m (previous year: EUR 217.7m). The EBIT improved from EUR -13.1m to EUR -0.4m.

Taken by geographical segment, demand for scheduled traffic rose strongly in the first nine months, particularly in the regions of Scandinavia, Southern Europe, Central Europe, Germany and Switzerland. The strongest growth was achieved on long-haul routes heading into Central Asia, Asia and the Middle East. In the long-haul charter segment, while there was a reduction in the number of passengers carried compared to last year, popular seasonal holiday destinations in this segment, including Cancun, Varadero and Punta Cana, continued to be served. Growth was strongest in the medium-haul segment, to destinations in Greece, Spain, Turkey and Egypt.

Strategic fleet adjustment continues
One Airbus A319 and one B737-800 have been newly transferred into the fleet to date this year. Fixed orders are currently in place for one B777-200, with delivery due to take place at the beginning of 2007. Further important steps were taken in the strategic adjustment of the fleet, with one CRJ-100 sold and transferred at end-March 2006 and one A340-200 removed from service at end-March and transferred in May.

In the course of the consistent reduction in unnecessary capacities and the fleet adjustment, one Boeing B737-600, one Dash-8/300 (with purchase agreement) and three Embraer 145 were being leased outside the Austrian Airlines Group as at end-September 2006. One Boeing B737-800 was leased out at end-September to generate additional revenue in the winter months, when load factors are lower. One Boeing B737-300 and one Fokker 100 were in use at the Group’s Slovak Airlines subsidiary.



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