On the face of it, European airline fortunes for the third quarter of the calendar year were a case of business as usual.
Collective operating profits for the three months ending 30 September were, at $4.4 billion, just a little ahead of the $4.3 billion posted for the same period last year. Net profits ran $500 million higher than the previous year at $3.4 billion.
But there was a big mix in fortunes for European carriers across the quarter. The likes of Air France and Lufthansa took extra pain from the impact of high-profile strike action and continue to face challenges in tackling their costs, while restructuring carriers such as Air Berlin and Finnair braced for significant losses this year.
But at the other end of the spectrum, the Turkish pair Pegasus Airlines and Turkish Airlines both reported a big jump in third-quarter profits, and Irish carriers Aer Lingus and Ryanair both upped their profit targets, as did a confident IAG, which also outlined bold long-term profit targets.
If the easing in oil price – the barrel price of crude has dipped to the almost forgotten sub-$80 levels – has taken away some of the pain of fuel costs, there is little relenting in the pressure on labour costs for many.
Air France-KLM group aborted its attempts to redress short-haul costs through the expansion of Transavia Airlines beyond France and the Netherlands amid September’s damaging pilots’ strike. It estimates the walkouts had a negative impact of €330 million ($412 million) on operating profit, and €416 million in revenue terms.
Scrapping of Transavia's pan-European expansion plans has freed up investments worth "several hundred million" which had been allocated to that project, Air France-KLM finance chief Pierre-Francois Riolacci says. These funds will now provide the group with "fresh air" for cost-cutting initiatives in 2015, he adds.
Meanwhile, KLM Royal Dutch Airlines, now led by Pieter Elbers after last month’s sudden departure of Camiel Eurlings, is discussing cost-cutting measures with unions after its performance dipped.
After the airline performed "extremely well" over the last few years, KLM's latest results have been "poor", admits Riolacci. The Dutch carrier's third-quarter operating profit declined 26% to €265 million, while turnover was down 1.8% at €2.75 billion.
Riolacci would not disclose details with staff negotiations ongoing. But he says the plans do not involve any "drastic measures".
Lufthansa, which faced a string of pilot stoppages during October, says it will direct expansion plans away from its mainline operation to other group airlines until management reaches a new labour agreement with the mainline pilots.
The mainline passenger operation cannot be grown under the present "expensive" collective labour agreement, argues Lufthansa Group chief executive Carsten Spohr.
German pilots’ union Vereinigung Cockpit, he says, "would like to keep as many aircraft as possible under the collective labour agreement". But he adds that there must be a reduction of staff costs related to pilots if the mainline is to grow.
But if labour has been a sore subject for Lufthansa and Air France-KLM, it is a happier story at the moment at IAG. Having endured its own share of industrial pain in recent years at both British Airways and Iberia, IAG was a beneficiary this time round.
"We did see a benefit in the third quarter from Air France and Lufthansa, principally from Air France, and we saw that with all three companies [British Airways, Iberia and Vueling] – somewhere in [the region of] €40 million in the third quarter,” says IAG boss Willie Walsh.
Notably, it was Iberia, which over recent years dragged on IAG results, which Walsh describes as the “star performer” in third quarter. While that €162 million operating profit had been "anticipated on the back of the restructuring" programme under way, it was "great to see [the] underlying financial performance of Iberia being as strong as it is".
IAG, which lifted its full-year profit target for the year, also set out a target of 10-14% for long-term annual operating profit margin, and it expects to give its first dividend next year.
Aer Lingus meanwhile, which lifted its profit target after a bright third quarter, is also closing in on settling a long-running labour dispute over pensions. After almost five years of talks, workers have backed proposals to settle the dispute – although the airline, perhaps mindful of the difficult journey so far, remains cautious of unexpected hitches.
But a deal on pensions would allow it to press ahead on securing new labour efficiencies while it will expand transatlantic service for a second straight year.
After the financial turmoil of 2008 and 2009, another profit this year would mark a fifth consecutive year in the black for the Irish carrier. Many of the headwinds appear to be easing, and chief executive Christoph Mueller, who will step down by May 2015, when his successor has been determined, is set to leave the airline in far better health.
"We have two things in common with Ryanair, which I do not say a lot," he says, referring to the strength of its operating margin and cash positions. "I believe if you compare this company with the Aer Lingus of five years ago, when we were threatened with bankruptcy, we now have one of the strongest balance sheets in the industry, if you measure unrestricted cash against turnover, and we are now in spitting-distance of having an operating margin close to the most profitable airline in Europe."
For its part Ryanair is forecasting a robust winter period, and has sharply raised its profit outlook for the full year following a strong first half.
Another European low-cost carrier, EasyJet, meanwhile delivered the improved profit performance it previewed in early October by confirming profits for the £581 million year ending 30 September. This marked an improvement of more than a fifth on the previous year.
Source: Cirium Dashboard