Savvy hedging helps SWISS turn in solid results
Savvy fuel hedges has helped SWISS turn in a solid set of first half figures, but higher yields were tempered by rising fuel costs.
SWISS generated total income from operating activities of CHF2,556m for the first half of 2008, a 10.9% increase on the CHF2,304m of the same period last year. Total first-half capacity showed a 12.5% increase on the prior-year period in available seat-kilometre terms.The additional revenue did little to raise earnings, however: higher fuel prices had a severely negative impact on EBIT levels, despite the mitigating effects of the fuel hedges held. As a result, EBIT for the first half-year amounted to CHF 262 million (compared to CHF 311 million for the same period in 2007), of which CHF 171 million (2007: CHF 193 million) was generated in the second-quarter period.
“Strong efforts from our sales teams helped keep our flights well utilised in both passenger and cargo terms,” comments CEO Christoph Franz. “But the increases in our fuel surcharges did not translate into higher yields to the extent required. Despite this, however, and despite the year-on-year decline, we have posted a solid EBIT result for the first half of 2008 that lies within our expectations.”
“We do see storm clouds on the horizon, though,” Franz continues. “The record price of jet fuel and the international financial crisis, which is now having a growing impact on the business economies in some of our foreign markets, are a major burden that poses a particular challenge to the entire air transport sector. But SWISS is not unprepared for the turbulence ahead. Our company today is solid to the core. And we will continue to make the strategic investments we have planned in our fleet and our product, to ensure that we can further maintain our market position.”
Fuel costs now account for around 30% of SWISS’s total expenses (compared to 12% back in 2003). SWISS is currently still deriving substantial benefit from its fuel-hedging programme. But the airline admitted to having to increasingly pay current market prices for its fuel from 2009 onwards.
“The latest record prices of aviation fuel will have their - if delayed - impact on our costs,” Chief Financial Officer Marcel Klaus concedes. “That’s why we are currently taking action on a number of fronts, to optimise our processes and further enhance our cost structure. The burden of higher fuel costs cannot be borne by the airlines alone, though, and we will also have to talk to our suppliers about how the cost savings needed can be achieved.”
SWISS carried 6.45 million passengers in the first half of 2008, more than in any previous first-half period (January-June 2007: 5.76 million).
Swiss WorldCargo also largely maintained its high cargo load factor, thanks in no small part to its successful focusing on transporting goods in high-value niche markets: first-half cargo load factor by volume amounted to 84.0% (prior-year period: 84.7%).