Last year saw the financial health of European airlines improving, although for some restructuring and fuel costs put the brakes on a full recovery

Full-year financials reflect solid growth overall, with Lufthansa easily the most bullish, proclaiming 2006 a "record" in terms of profit and revenues. At the other end of the spectrum, Finnair's net result slipped into negative figures after what the carrier described as "exceptionally large restructuring expenses".

Finnair points to 2006 as an "interim year" in its financial development, although it reports increased revenues on the back of higher passenger load factors. High fuel price rises contributed to the burden imposed by the restructuring effort, added to which, says chief executive Jukka Hienonen, ticket prices were depressed by "aggressive price-driven marketing" in a market that saw the disappearance of two low-cost carriers during the year.

Austrian Airlines Group chief executive Alfred Otsch also blames "crucial restructuring steps" for a marginally negative operating profit. These centred on the complete restructuring of its long-haul network and personnel costs. But, he adds, the group has significantly improved its operating performance and result. "The key factors have been the increase in flight revenues and stronger growth in our yields compared to unit costs," he says. With group revenues up by 8.4%, the Austrian Airlines Group was near the 9.7% average for European major airlines to have reported so far.

Iberia closed 2006 reporting a healthy 10.5% increase in group revenue, reflecting improvements in all areas of the business, but mainly the air passenger and cargo sectors, which grew 8.5% during the year. The figures were also helped by a 40.7% increase in income from third-party fleet maintenance.

Strong performance

The strong performance at Lufthansa reflects profitable performance from all sectors of the business. Operating profit up by 46% and revenue by almost 10% were figures that "speak for themselves", according to chief executive Wolfgang Mayrhuber. The renewed focus on core competencies saw the sale of Lufthansa's Thomas Cook subsidiary raise €500 million ($665 million) as part of an effort to "sharpen our group profile", he adds. Analysts comment, however, that any sign of weakness in premium traffic, to which Lufthansa has high exposure, will badly affect earnings and share prices.

Year-end figures from the SAS Group revealed improved earnings as a result of "effective cost and capacity control". But the group says its financial position "remains weak the results for 2006 are a good sign, but the level is too low to meet shareholders' return requirements and future investment needs". Chief executive Mats Jansson adds while there are currently no signs of a slowdown in the airline market, "uncertainty remains regarding the strength of growth, the future competitive situation and the trend for jet fuel prices".

Swiss posted its first ever results in the black, thanks to an improved cost base and through the synergies achieved after the integration with Lufthansa. Chief executive Christoph Franz comments, however, that despite high load factors and high yields the airline is "still not sufficiently competitive".

Airlines with a financial year to the end of March include British Airways, whose chief executive Willie Walsh says the picture for the nine months to December was one of "mixed results". Fuel remains a significant burden for BA, with last quarter costs up 11.2%, while revenue was hit by several external factors including the continued impact of the August security crisis and failure of the baggage system during the delays caused by fog at London Heathrow in the pre-Christmas peak period.

In marked contrast, Air France-KLM reported "excellent" third-quarter results with turnover up 5.9% and operating income 32.6% higher. It says it expects "very strong results" for the full year. It adds, however, that while passenger activity remained buoyant, the cargo sector experienced a difficult quarter "during which the competitive environment remained extremely aggressive".

Source: Airline Business