Czech Airlines has emerged from 2006 with an after-tax loss of CZK 396.9 million which puts CSA’s results 100 million crowns ahead of where it was in 2005, despite the fact that the company had to face significantly greater financial obligations last year. The audited results have therefore confirmed the originally announced figures and shown that the company has so far been able to meet the objectives of its OK 2006-2008 Strategy plan that was approved by the company’s general meeting in 2006. Based on international standards, CSA reported a pre-tax loss of USD 1.5 million for 2006.
“In 2006, we had to generate an additional 700 million crowns in revenues, compared to 2005. These were additional costs related to aircraft financing and increased salaries. This year, we have to do even better by at least another 700 million crowns, which we will once again need to cover similar unavoidable expenses,” stated CSA’s President, Radom’r La?ák.
Earnings Up, Costs Down
In 2006, CSA generated operating revenues of nearly 23.56 billion Czech crowns, representing a year-to-year increase of 6.3%. The greatest share of the airline’s revenues (64%) came from regular ticket sales. The strongest growth (30%) was seen in revenues generated by the charter segment of the business. At the same time, the company’s operating expenses increased (by 3.5%) to a total of 23.6 billion crowns. The airline was able to successfully control its rising expenses, despite the fact that the company’s payroll expenses increased by CZK 400 million in 2006 under the current collective bargaining agreements and its aircraft lease costs added an additional expense of CZK 200 million.
In 2006, CSA’s management started to introduce a series of standardized management tools to support and monitor sales. These the company had previously been lacking. Other changes were in line with its current marketing strategies. Here CSA has introduced a series of motivational programs for its sales associates and an incentive system for ticket agencies. The first positive results started to be seen towards the later part of 2006. While in the first half of 2006, the company’s revenues coming from regular ticket sales - the airline’s main source of revenues - came in five percent under plan, the results for the second half of the year came in one percent ahead of plan. Ticket sales are continuing to move up with the trend clearly evident in the results for the first few months of 2007.
CSA’s goals are to generate more revenue and to continue to provide better passenger service. An example of this ever improving quality of CSA’s services is evident in the fact that the company was rated the second most on-time airline, according to data for the first quarter of 2007. The competition for this rating was made up of the 26 major airlines that are members of the Association of European Airlines (AEA). Even better, in March, CSA was at the top of the AEA on-time list. Additionally, for the fourth time, CSA was voted the “Best Airline Based in Central / Eastern Europe” - an award voted on by industry professionals and organized by the London-based, Official Airline Guide industry publication.
In 2006, Czech Airlines carried 5.5 million passengers, which represented a year-on-year growth rate of 4.8%.
Results Based on International Accounting Standards
Based on international accounting standards, which are used by the majority of airlines for the reporting of financial results, CSA reported a pre-tax loss of USD 1.5 million in 2006. The company generated earnings from operations of USD 13.752 million. Revenues from passenger traffic were up by 16% year-on-year, increasing to a total of USD 1.08 billion.
Maintaining 50 Aircraft and 5,000 Employees
“2006 was a year for recovery and the settlement of past obligations. It was a year in which CSA was able to live up to the commitments it had made to its employees, clients and shareholders. 2007 is to be a year for stabilization and the making of major decisions - decisions regarding the strategy for our fleet, and specifically our long haul aircraft, and the decisions regarding the completion of our divestitures,” said CSA President La?ák.
The company’s plan for 2007 is built around realistic assumptions that should allow the company to return to profitability after a number of years with red ink. The business plan, which has been approved for this year, anticipates a profit of 42 million Czech crowns this year. However, the company’s liabilities from previous years will add an additional 700 million to this year’s expenses. The existing collective bargaining agreements, which were signed by the previous management, and the new Labor Code will result in an additional cost of at least CZK 300 million and aircraft lease payments will cost the company another CZK 400 million. The projected results also anticipate the completion of the currently ongoing restructuring of the company, which includes the sale of two subsidiaries - Air Cargo Terminal and Air Czech Catering.
The company’s current strategic plan envisions maintaining the current size of the company - i.e. 50 aircraft and roughly 5,000 employees. For 2007, the company has adequate financial reserves and the airline has also been able to obtain guarantees for the financing of the five new Airbus A320/319 aircraft that it is adding to its fleet in 2007.