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Analysis

1st quarter 2019: is aviation in difficulty?

Mediocre results in the first quarter, wait for buyers, mechanical problems, rise in fuel prices, instability of currency. In this first quarter that is usually mediocre for aviation, skies are stormy.

Air France - KLM, a storm ahead?

After having put an end to the standoff between management and flight crews and pilots, Ben Smith launched a voluntary departure plan. 400 departures are announced for May 13. Although the company ended 2018 on a very positive note, first quarter results 2019 are in the red despite a +3% increase in passenger numbers. 

Benjamin Smith, Air France-KLM Group CEO, said: "As anticipated, the first quarter has been challenging for the European airline industry including the Air France-KLM Group, as substantial industry capacity growth in the off-peak business period led to unit revenue pressure. In this context, the Group achieved further improvement in unit cost while reaping the benefits of its efforts to strengthen its positioning, as evidenced by the first signs of progress in operational performance at Air France, notably in term of “Net Promoter Score” and punctuality. These elements, together with a more benign industry supply outlook for the summer, lead us to expect improving trends in the rest of the year and to confirm our full-year guidance. We aim to have a capital market day planned in November 2019 to further outline the Group strategic directions.”

Expenses are therefore to blame for this loss of €303 million on operating results. The cargo business, which was in good health, also fell by -1.3% on total revenue.

Transavia grows (passengers up +7.4%) but posts operating income down -71 million euros. Maintenance posts operating income up +47 million euros.

The company expects growth in its capacities by 2 à 3% en 2019 avec une progression prévue entre +9 et +11% pour la branche Transavia. Cost reduction remains a priority for the group which will investir 3.2 billion euros in 2019.

Lufthansa is no better off...

Same pattern, same punishment, the German airline Lufthansa blames competition, overcapacity of the European market and the increase in fuel prices among other issues in its first quarter review. Its operating result is down -344 million euros at the beginning of 2019.

Alitalia on the wire

Ferrovie dello Stato (FS) has until June 15 to make a viable and coherent takeover offer further to the additional delay offered by the Italian government. Air France was interested in the company, but diplomatic relations between the two countries were not in favor of this merger. FS should invest in 30% of the capital of Alitalia, while the rest remains to be financed.

Countdown for the Indian company Jet Airways

The company's planes have been grounded since April 17 avril and a colossal debt has dissuaded buyers since it was put up for sale by its majority shareholder the State Bank of India. Once India's leading airline, the company suffered from the development of the low-cost offer in its trading zone and was unable to reposition itself. The fate of 23,000 Jet Airways employees will be established on May 10, the deadline for taking over the company.

The aviation sector has also been disrupted by smaller, more agile, lighter actors that practice aggressive prices in order to win shares in a growing market. Financial results for AF/KLM prove this, traffic is up while but management and strategic choices are what will make the difference. Proof of this lies in Jet Airway, which was weighed down by the takeover of the company Air Sahara that was poorly negotiated, poorly managed, poorly integrated, and also, among other causes according to Indian analysts, led the company into suspension of payment.

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