From the grounding of Boeing 737 MAX 8, to fuel cost increases, Comair FD Kirsten King shares all.
On Tuesday, 17 September, Comair announced its annual financial results, declaring a profit, despite a very challenging year.
Comair FD Kirsten King says:
“The group has navigated a very difficult year that brought some unprecedented challenges, especially to our airline operations. The fact that Comair – South Africa’s only JSE-listed airline operator – has maintained its unbroken record of profitable operations is testament to the prudent and farsighted approach adopted in its management, ongoing investment in diversification and innovation, and the dedication of its personnel in day-to-day activity.”
The airline reported a 175 percent year-on-year increase in earnings per share and a 184 percent year-on-year increase in headline earnings per share, bolstered by SAA’s settlement of its anticompetitive conduct.
The settlement, which is the outcome of a 14-year court-case, amounts to R1.1 billion, plus R168 million in interest. According to the statement, it has helped offset an 82 percent decline in ‘normalised’ profit before taxation, from R471 million to R89 million, despite a record revenue performance that grew nine percent year-on-year due to a four percent increase in airline load-factors, a three percent increase in average airfare and two percent increase in combined sundry, ancillary and non-airline revenue.
Kirsten said that because it is a settlement, not all of the money has been paid in cash yet, so Comair hasn’t included it in its financial results. The tax treatment of the settlement sees 50 percent of the settlement as capital in nature and 50 percent revenue.
Kirsten said that when you exclude the SAA settlement, the earnings are “significantly down”. “Although it is a record revenue performance, the increase in operating expenses is quite disappointing”.
Fuel cost and currency movements added R342 million and R87 million respectively to operating expenses.
“Fuel cost and currency movements are things we always have to deal with,” Kirsten said.
Kirsten said that, although the Boeing 737 MAX 8, which was grounded after two air disasters, is being rectified, it is not yet certain when the aircraft, will be ready for operation again. International talk among airlines suggests it may only be December or January.
“We had to take out a short-term lease to mend the gaps that were being created, incurring fixed costs such as finance and maintenance costs, over and above short-term aircraft leases, without generating the commensurate revenue or contribution anticipated,” she said.
Kirsten said that longer-term mitigation actions are underway to ensure greater control over both line maintenance as well as heavy maintenance.
“We are in the process of moving line maintenance of the Comair fleet from SAA Technical to Lufthansa Technik. The process started in November and will take 18 months to complete. Comair has also acquired 100 percent of the equity in Star Air Cargo and Star Air Maintenance to bring heavy maintenance capacity back into the Comair Group.”
Kirsten explained that Star Air has AMO, so they are certified to service and maintain the bigger aircraft. However, the acquisition is still subject to the Competition Commission’s approval.
“Lufhansa Technik will be quite expensive in the first two years of the deal and we will only start seeing the financial benefits in the third year of the process. But we’re moving in the right direction,” Kirsten said.
Comair continues to experience excess capacity in the local market. Because of this, Comair is still relying on its non-airline business for growth, because it is less risky and less capital intensive. Kirsten said that although the non-airline business is slightly down in terms of profitability, Comair is still continuing to invest in new businesses. The airline is also experiencing pressure from the average fair in the low-cost market.
“Safair has proven to be quite a competitive competitor,” she said.
Kirsten added that:
“Despite ongoing economic and political challenges in our major markets, Comair is well-placed, with strong brands, skilled and committed staff, effective equipment, an efficient cost base, adequate cash reserves and investment into the diversified, non-airline segment of the business, which is progressing well and on which we’ll continue to focus.
“Obviously a crucial component of business is delivering shareholder value, so we’re gratified to be able to approve and declare a gross cash dividend of 18 cents per ordinary share, payable to shareholders for the financial year that ended on 30 June, and declared out of income reserves,” Kirsten concluded.