Austrian Airlines Group: Restructuring Successfully

20th Aug 2002

After a crucial year for the global aviation industry in 2001, the Austrian Airlines Group succeeded in generating a positive result (EBIT) of EUR + 29.7m in the first six months of 2002 (2001: EUR - 31.5m). The profit before tax (EGT) for the half-year is EUR + 4.3m, following EUR - 70.2m for the comparable period the previous year. Despite the fact that availability was reduced by 6.9 % (availability on scheduled services - 12.1 %) the Austrian Airlines Group even managed to raise passenger volume by 0.5 % to a total of 4,086,918 passengers carried in the first six months of the year. Vagn Soerensen, Chief Executive Officer of the Austrian Airlines Group, made the following comments on this, his first half-year report: “By logically implementing our extensive programme of measures, we have been able to drive forward our strategy of operational restructuring in the second as well as the first quarter. These initial positive results have given us renewed impetus in our mutual efforts. Our situation now demands staying power, consistent value orientation and commercial far-sightedness.”

Compared to the first six months of last year, the Group strongly improved its result in the first half-year of 2002. The EBITDAR reached EUR 252.4m, against EUR 79.7m for the comparable period in 2001. After EUR -31.5m the previous year, the EBIT increased by EUR 61.2m to reach EUR 29.7m. Profit before tax was EUR 4.3m, compared to EUR - 70.2m in the first six months of 2001.

Thomas Kleibl, Chief Financial Officer of the Austrian Airlines Group, updating his objectives for the Group«s result for the full year: “In the first stage of our restructuring programme for 2002, we set out to break even on the EBIT level. All corporate processes were focused on this goal.” Mr Kleibl went on to define his expectations for the result for the second half-year of 2002: “As long as external conditions will be favourable, we anticipate that EBIT for the second half-year will approximately break even. This will also depend on fuel expenditure as well as on the general economic trend.”
As a consequence of the improved operating result, of provisions for aircraft made in accordance with IAS 36 (depreciations based on current dollar rate valuations for aircraft awaiting sale) and changes in the working capital (caused by a strong increase in provisions for unearned transportation revenues arising from flight documents sold and not yet used), the cash flow from operating activities increased sharply from EUR 17.1m last year to EUR 305.6m.

Operating expenses in the first half-year of 2002 reached EUR 1,130.3m, an increase of 1.8 % or EUR 20.4m on the previous year. This increase is essentially due to provisions for aircraft awaiting sale made in accordance with IAS 36 (see ‘Cash flow from operating activities’ paragraph for explanation). When adjusted to account for this effect, expenses were in fact down. Production cutbacks led to a significant reduction in variable costs. The cut-back in personnel-costs has been implemented according to schedule. The group-wide voluntary salary waiver of 8 % for the period of one year took effect from 01.01.2002, respectively 01.03.2002 onwards. In the first six months of 2002, 745 out of 968 positions were already cut, which will account for another 7 % in personnel-costs savings.

Despite a sharp reduction in overall production (total available seat kilometers fell by 6.9 %, while available seat kilometers on scheduled services were down by 12.1 %), flight revenue increased by 1.4 % to EUR 960.2m. Other revenue fell by 20.0 % due to a reduction in income from aircraft leasing. In total, revenue decreased slightly as a result, falling by 0.4 % to EUR 1,030.9m. The Austrian Airlines Group was able to push forward the improvements already launched in the area of operations. A structural effect resulted from the reduction in long haul capacity in favour of short and medium haul services with higher yields. Due to the slide in value of the US dollar against the Euro, exchange rate valuations of foreign currency liabilities generated other operating income of EUR 95.1m. As a result, the operating revenue of the Austrian Airlines Group increased from EUR 1,078.4m in the comparable period last year to EUR 1,160m in the first half-year of 2002.


Due to the reorientation of the production programme introduced in the 2002 summer schedule, the Group made a 23 % improvement in the connection quality of its network (the number of possible connections) and raised its market share at the domestic hub of Vienna (AAG passengers as a percentage of total passengers at Vienna Airport / scheduled and charter) from 61.2 % to 66.2 %.
The Chief Commercial Officer, Dr. Josef E. Burger, briefly outlined the Group’s marketing strategies for the year to date: “By tightly managing our capacities, making structural improvements to our range of routes and continuing to increase the speed with which we act and react to changed circumstances, we have succeeded in raising yields by 15.1 %. In European comparison, we have produced a traffic trend clearly above the European average (the AEA average in revenue passenger kilometers was minus 8.1 %, while the figure for the Austrian Airlines Group was up by 6.6 %).” The passenger load factor for medium haul traffic increased by 2.4 % to 60.6 %, while the figure for long haul services rose by 0.6 %, reaching a level of 75.5 %.
The Group plans to consolidate the regional traffic segment during the second half-year by integrating Rheintalflug into Tyrolean Airways. The repositioning of the regional traffic segment as part of the scheduled flight programme is also central to the development of a new brand architecture for the Austrian Airlines Group. Both processes will serve to provide the market presence of the Austrian Airlines Group with a sharper profile and to realise the Production Company Concept in terms of the Group’s external appearance. Dr. Burger made the following comments about the innovations in the fare segment: “The new fare concept for domestic air traffic, and that for regional traffic between Austria and Germany, have both been designed to correspond perfectly with the needs of our customers and, once we have have gained their acceptance, to earn additional increases in our load factor and income.”

Investments in the first half-year totalled EUR 199.7m, 30.2 % lower than those made in the comparison period the previous year. Based on non-alterable, long-term purchase agreements, one Canadair Regional Jet, one Dash 8, one Boeing 737 and one Boeing 777 have been newly integrated into the fleet since the beginning of the year. In intense negotiations with manufacturers, other aircraft deliveries originally planned for 2002 have been postponed by an average of one to two years. Currently existing overcapacities are either being reduced where possible or will be profitably deployed again once markets have recovered.

As at July 2002, concrete agreements had been concluded for the sale of one Challenger CL600 and two Dash 8 aircraft. One Boeing 737, three Dash 8 and two Business Jets of the type Learjet 60 are currently leased out.

Based on the objective of fleet harmonisation in the medium term, the Group is simultaneously optimising its future capacity requirements. In accordance with this strategy, six fixed orders for jets of the type Airbus A320 have been converted to the most modern short and medium haul Airbus A319 aircraft. At the half-year press conference, the Group’s Chief Operations Officer, Dr. Walter Bock, made the following remarks about the new fleet member from the Airbus family: “With its range of 4,900 kilometers, seating capacity for 126 passengers and high cost-effectiveness in the form of cockpit commonality, the A319 is the perfect aircraft for our fleet. Starting in the short haul segment, we have now taken the crucial first step towards wider fleet harmonisation that will be necessary in the medium term.”



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