Alitalia Reports 76 Billion Lire Operating Profits For Third Quarter

The Alitalia Board met today and approved the report on the Group’s business performance for the third quarter of 2000.The consolidated profit for the quarter, before taxes and extraordinary items, was 59 billion lire - a decrease of 35 billion lire with respect to the same period in 1999. This result led to a reduction, albeit limited, in the loss for the whole period January-September amounting to 283 billion lire, again before taxes and extraordinary items, compared to 15 billion lire over the same period in 1999.

The July-September quarter 2000 confirms the positive trend in the commercial sector where traffic revenues - net of sales expenses - are significantly up (+12% with respect to the same period in 1999) due to an increase in unit revenues and to the steps taken recently to rationalise commercial costs. However, the results for the period continue to show the negative effect of high fuel prices which have risen by 165 billion lire (compared to about 500 billion lire for the whole period January-September), only partially offset by fare adjustments. All these factors have led to a decrease in the operating results for the quarter of about 30 billion lire compared to the same period in 1999 (from +106 to +76 billion lire), while the accumulated negative figure was 255 billion lire (-270 billion lire in 2000 compared to -15 billion in 1999).

The production value for the third quarter 2000 rose by 10.4% reaching 2,928 billion lire overall, with a noticeable increase not only in passenger revenues (+10%) but also in cargo revenues (+12.7%). This growth is even more significant when compared to the January-September period (+12.7%) with a production value of over 7,800 billion lire. Other costs, net of fuel charges and exchange problems linked to the depreciation of the Euro, have virtually remained stable.

At the close of the quarter in question, the Group’s workforce had risen to 23,623 (+2,228 with respect to June 30, 2000). This increase includes 1,657 employees (of whom about 1,531 came from the “Aeroporti di Roma” company) taken on recently by the controlled company Alitalia Airport. The remaining new employees reflect the increase in flight operations as well as the strengthening of third party maintenance activities, and the expansion of commercial and airport areas as a result of the severed alliance with KLM. At the close of the third quarter 2000, the Group’s fleet was made up of 167 aircraft, 126 of which are directly owned.

Net financial indebtedness as of September 30, 2000, showed a slight decline with respect to June 30, 2000, (1,480 billion lire against 1,507 billion in June) since cash flow was greater than net investments for the period - 180 billion lire, of which 100 billion was spent on the fleet and the rest was mainly invested in developing maintenance activities at the Grottaglie facility and in expanding handling operations at Fiumicino airport. However, it should be remembered that the Group carried out a programme of very heavy investments (about 1,500 billion lire) in the period between January and September 2000. This figure is not far short of the total investment made over the last two financial years.Significant events which took place during the third quarter include:
* approval for the sale of twenty MD80-82s with the simultaneous agreement for leasing-back the aircraft; this operation is now being finalised and should be completed by the end of November


* completion of the project for the provision of handling facilities at Fiumicino airport through the controlled company Alitalia Airport, which began on July 1 for air-side (ramp) handling and was extended to land-side (passenger) services on September 1

* the handing over in September, by the consultancy firm appointed by the European Commission, of the report on the state of the Malpensa hub. The conclusions of this report may well lead to further requirements by the European Commission concerning the sharing of air traffic in the Milan area. This may affect operating activities.

Furthermore it is important to highlight the purchase of six B777-200ER aircraft together with six options for the new B777-300ER version and a further six rolling options, taking the place of the forecast purchase of five B747-400s and the three options for that aircraft.
As for the trend of future performance, it should be emphasised that, as previously mentioned, the July-September period confirmed the signs of an upswing that was already evident in the previous three months. This was reinforced by improvements in unit revenues as a result of recent fare adjustments. On the subject of costs, the rise in fuel prices - which hit record levels in October - has had a less pronounced effect than expected, party as a result of the hedging operations taken for the October-December period and, to a lesser extent, for the year 2001. The overall picture is positive, apart from a few areas of tension whose effect is still limited (such as the Middle-East crisis and recent union problems). Broadly speaking, this makes it possible to confirm that the forecast operating loss will be in line with that of the first six months (347 billion lire). This amount should be offset by extraordinary items.