Austrian Airlines: Turnaround is Successfully Initiated

In the reporting period of the first quarter of 2002, the EBITDAR reached EUR 40.6m, more than double the comparable figure for the preceding year (EUR 20.2m). The EBIT improved by EUR 11.8m to EUR -40.1m, and profit before tax also rose - from EUR -61.1m in the first three months of 2001 to EUR -51.5m in the first quarter of 2002. Both the flight revenue of EUR 428.4m and operating revenue of EUR 477.8m were held at approximately the same level as the preceding year in the first quarter despite sharply reduced production (available seat kilometres were down by c. 10 %). Vagn Soerensen, Chief Executive Officer of the Austrian Airlines Group made the following initial remark: “Clearly, the far-reaching measures designed to reduce costs and increase revenue are already having positive effects in the first quarter.” He continued by defining his credo for the company: “We are reforming the operational structures of the Group with real determination, and shall continue to do so in the face of the difficult work to come. While we are still in the early stages of recovery, we are extremely fortunate to have a highly motivated team that possesses the staying power that is so crucial.”

Chief Financial Officer Thomas Kleibl summarised the objectives of the turnaround for the
financial year 2002 thus: “The restructuring measures that we introduced are now beginning
to take hold. To guarantee their lasting effectiveness, however, it is absolutely essential to stay
focused and implement those strategies with real determination. For 2002 overall, our target
for the turnaround is to breakeven on an EBIT-level.”
With the company holding operating revenue at the same level as the previous year while
simultaneously forcing down expenditure, the Austrian Airlines Group made an improvement
in its result for the first quarter of 2002 compared to same period in 2001. The EBITDAR
reached EUR 40.6m (2001: EUR 20.2m). The EBIT improved by EUR 11.8m to
EUR - 40.1m, while profit before tax was EUR -51.5m, following EUR -61.1m the previous
year. These figures also need to be considered in the wider context of seasonal conditions,
which tend to lead to negative results in the airline industry in the first quarter.
In the first quarter of the year, flight revenue (EUR 428.4m) and operating revenue (EUR
477.8m) of the Austrian Airlines Group were approximately the same as the preceding year,
despite sharply reduced production (ASK: -10 %). The reduction in long haul capacity in
favour of short and medium haul routes with higher yields resulted in these positive structural
effects.
Following changes in the working capital, the cash flows from operating activities rose strongly
to EUR 76.8m, following EUR 13.3m for the first quarter the previous year.
Operating expenses for the months January to March 2002 totalled EUR 517.9m, some EUR
6.4m or 1.2 % down on the figure for the same period the previous year. Production cutbacks
led to a reduction in costs, above all in variable costs. Staff cutbacks of 968 jobs across the
Group are continuing according to plan. Some 650 posts had been removed as at the end of
April 2002.
Investments during the first quarter totalled EUR 168.4m (-6.5 %). Based on non-alterable,
long-term purchase agreements, one Canadair RJ, one B737 and one B777 aircraft have been
newly integrated into the fleet since the beginning of the year. Currently existing overcapacity
is either being reduced where possible or will be profitably deployed again once the markets
have recovered. By April 2002, concrete agreements had been concluded for the sale of one
Challenger CL600 and one Dash 8 aircraft, and the lease of two B737, three Dash 8 (with a
purchasing option) and two Learjet 60 aircraft.
Chief Financial Officer Thomas Kleibl made the following statement on the efficiency of the
reduction of idle capacities and postponed aircraft deliveries: “Having appraised the market
conditions and designed our policies accordingly, we have either leased or sold the majority of
our idle capacity. By the beginning of May, only five aircraft remained grounded. Following
intensive negotiations with the manufacturers, twelve of the fifteen aircraft deliveries that
were originally planned for the Austrian Airlines Group fleet have been postponed by one to
two years.”
The cumulative traffic statistics for the first quarter of 2002 show that, at 1,755,690
passengers carried, total passenger volume was just 1.0 % down on the previous year. It needs
to be taken into consideration, however, that total production in available seat kilometres was
reduced by 10.0 per cent, while revenue passenger kilometres only fell by 8.1 %. As a result,
the overall load factor (scheduled and charter services) increased by 1.4 percentage points to
69.4 %. From January to March 2002, the carriers of the Austrian Airlines Group made
34,265 individual flights, 1.2 % down on the first quarter in 2001.
Chief Commercial Officer Josef E. Burger made the following comment on the scheduled
services result in the current interim accounts: “We have succeeded in improving the EBIT for
the scheduled service segment by EUR 13.0m to EUR -36.2m (2001: EUR -49.2m). Overall,
this means that the level of revenue for scheduled services of EUR 391.8m is already 1.7 % up
on the figure for the first quarter of 2001.” Looking to the future, Mr. Burger added that, “...
our strategic conception of the summer schedule is now based upon expanding our domestic
market and market position in Western Europe, continuing to intensify East-West transfer via
Vienna and consolidating long haul traffic by steadily focusing our services. Based on these
prerequisites, we shall continue to increase efficiency in the second and third quarters. At the
same time, the onset of increased travelling activity over the summer months will enable us to
earn additional flight revenue.”
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