During the first nine months of 2003, a period characterised by numerous geopolitical crises and a lasting intensification in competitive pressure, the Austrian Airlines Group used effective management to achieve a result from operating activities (EBIT) of EUR minus 7.5m. The profit before tax was EUR -19.0m, compared to EUR 35.6m in the third quarter of last year. For the full year, the result from operating activities (EBIT) is forecast to break even. Due in particular to the effects of the crises in the early months of the year, the passenger volume of the Austrian Airlines Group for January-September 2003 fell by 5.9 % to 6,441,304 passengers carried.

Vagn Soerensen, Chief Executive Officer of the Austrian Airlines Group, made the following statement concerning the result for the Third Quarter 2003: “Having been able to implement massive countermeasures to meet and partially absorb the negative effects of the first half-year, we returned to our offensive course in the early summer. Based on the redesigned market presence, an extensive product and offer offensive has been launched, which will be followed by a geographical offensive in Central and Eastern Europe. The fundamental restructuring of the Austrian Airlines Group has to be continued if we are to look confidently forward to a successful future. If Austria wishes to continue to have an independent airline with a traffic system designed to suit the needs of the Austrian domestic market, then we must not flinch from making decisions over complex issues in the course of that restructuring!”

Decline in result -
The result in the reporting period was well down on the figure for the comparable period the previous year. The EBIT fell to EUR -7.5m, from last year’s figure of EUR 61.8m, while profit before tax was EUR -19.0m compared to EUR 35.6m the previous year. So far, 2003 has been characterised by an economic slowdown, the conflict in Iraq and the SARS outbreak. The level of demand slowly began to stabilise over the summer, although at a level significantly down on last year. In the context of the cost reductions now fully effective and the anticipated stabilisation of load factors in the fourth quarter, we expect to break even at the EBIT level for the year overall.

Thomas Kleibl, Chief Financial Officer of the Austrian Airlines Group, went on to make the following statement on the situation: “Despite the difficult circumstances this year, we have been able to reduce our interest-bearing liabilities by a further EUR 161.4m. Our ongoing restructuring project consists of a bundle of measures including adjustment of structural weak points; increases in efficiency and revenue; further negotiations on how to reduce the charges paid to monopoly similar providers in our service chain; innovative and rapidly implemented marketing; continued profiling in Central and Eastern Europe; and others. We have embarked upon fundamental, rather than purely cosmetic, restructuring of the Austrian Airlines Group, and will implement the project in the best interests of Austria, our shareholders, customers and employees.”

Reduction in revenue -
Due to the changed demand and reduced yields, our flight revenue fell to EUR 1,404.4m, following EUR 1,554.2m the previous year (-9.6 %). Exchange rate valuations of foreign currency liabilities at the reporting date provided the majority of other operating income. The operating revenue of the Austrian Airlines Group in the reporting period was EUR 1,628.6m, compared to EUR 1,842.4m (-11.6 %) the previous year.

Sharp reduction in expenditure -
Our operating expenses during the reporting period fell by EUR 144.5m, or 8.1 %, to EUR 1,636.1m. Due to the rapid implementation of the savings programmes, operating expenses also fell sharply in the second quarter (-13.0 %) and third quarter (-16.0 %). Despite this trend, it remains necessary to force costs down further still, particularly in the areas of flight operations at Austrian and third party charges across the Group. Due to our hedging of fuel prices since 2001, we were able to avoid the worst effects of the oil price increases (up to 80 % of which came about in reaction to the war in Iraq).

Liabilities reduced -
We continued to make consistent reductions in liabilities. Compared to the end of last year, interest-bearing liabilities were reduced by EUR 161.4m. Net gearing fell to 261.5 %, compared to 290.4 % as at 31 December 2002.

Cash flows from operating activities down -
Due primarily to the reduced inflow of funds from working capital, our cash flows from operating activities fell from EUR 428.2m last year to EUR 211.4m in the reporting period. Due to the sharp reduction in investments, our stocks of cash on hand and at bank and short-term investments increased by EUR 37.7m compared to the level reported at the end of 2002, reaching EUR 272.8m.

Traffic results by segment -
Capacity in the scheduled service segment rose in the reporting period against the weak comparison period the previous year. Available seat kilometers increased by 4.5 %. Worldwide uncertainty due to the Iraq conflict and SARS, as well as a generally weaker global economy, meant that revenue passenger kilometers - used as a measure of demand - only rose by 3.0 %. As a result, the passenger load factor fell by 1.1 percentage points to 70.4 %. Due to the changed travel habits and expectations of passengers, as well as more intense competition in the industry, yields fell considerably. The number of passengers carried fell by 5.3 % to 5,232,652. After reaching EUR 1,341.5m in the comparable period last year, revenue in the scheduled services segment this year totalled EUR 1,213.0m (-9.6 %). The EBIT for the scheduled service segment fell from EUR 47.4m to EUR -6.0m.

In the charter service segment, available seat kilometers fell by 11.1 %. (From the summer 2003 schedule onwards, routes to Canada are to be assigned to scheduled business.) Due to increasing weakness in demand, revenue passenger kilometers fell by 16.0 %. Revenue in the charter segment reached EUR 191.4m, following a figure of EUR 212.7m in the comparable period in 2002. The EBIT fell from EUR 11.4m to EUR -3.4m.

Taken by geographical segment, figures for the Middle East, Germany and Western Europe were down on last year. The fall in traffic to the Middle East caused by the Iraq war was countered by a policy of active capacity management. Traffic to Germany was characterised by general economic weakness and a sharp increase in capacity at low cost carriers. In Western Europe as a whole, however, capacity reductions were used to match falls in the number of passengers.

In the month of September, traffic results stabilised as a range of marketing campaigns were launched. The passenger load factor on scheduled services reached a new record level at 79.8 % (+2.2P.). On long haul routes and the geographical regions of South-East Europe, Southern Europe and Switzerland, traffic results showed particularly strong improvements on last year. This positive trend also manifested itself in comparison to the average for AEA member airlines. The growth in revenue passenger kilometers in the international traffic of the Austrian Airlines Group has been well above the AEA average since July 2003. Due to the greater than expected reduction in summer business in the charter segment, the positive trend seen in the early part of the year levelled off. In addition to this, sharply increased competitive pressure is leading to a situation of predatory competition in the charter market.

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