THE GOOD AND THE BAD AND THE UGLY

Victoria
By Victoria February 3, 2012 18:25

THE GOOD AND THE BAD AND THE UGLY


Oil worries, we all have them and already this week and throughout last year we have spoken about the possibility of spikes and the certainty of increases, as well as the benefits of fuel hedges for an airline and indeed the benefits of investing in oil. However we should mention a variable with huge ramifications. A recent respected report suggests that oil would fall across all scenarios of counties leaving the Euro, ranging from 5% from a Greece departure through to a 50% decline from a complete breakup……..Something to consider.

The Orix Aviation Airline Economics Aviation 100 2012 Industry Leader of the Year Award winner ; Masaru Onishi of Japan Airlines (JAL) shows through as being a solid decision as his airline raises annual profit forecasts for 2011/2012.

The Airline Economics Aviation 100 Awards, this year tempered with a mass of aerospace investor votes over and above senior aviation  professionals has shown yet again that results of the vote, on the face of it surprising at times, are once again backed up by industry news some weeks and months later. The vote, the largest of its kind in the industry, was filtered over the course of January 2012 to ensure that only those concerned with each area of business were counted, thus the results returned are in all cases customer/investor and peer lead.

With regard to JAL and its award, the category of CEO/industry leader was hard won against a strong vote for the CEO of Delta, Richard Anderson. At first thought many may say that JAL is in a bankruptcy protection scenario and that management should not qualify in some way. But on reflection one must consider how the airline has been dragged through a series of problems in 2011 to come out the other side in good health ready for an IPO in 2012.

Indeed, JAL today raised its annual profit forecast after reducing loss-making routes and boosting cooperation with American Airlines.

JAL is forecasting net income of 160 billion yen ($2.1 billion) for the year ending March 31, 2012, from earlier predictions of around 120 billion yen. Net income was 146 billion yen in the nine months to December 31, 2011 on sales were 909.1 billion yen.

The key for success in this market for JAL was to cut capacity on international routes by 21% during 2011, reacting at speed to both economic and disaster impact. During the same period domestic capacity was cut by 18%, which has turned out to be bang on target for this current market.

The management at JAL should be commended for their swift actions in 2011 which ensured that the airline remained on course for an IPO in an adverse market.

 

 

NOW FOR THE UGLY

 

Air India, fast becoming a problem from which only total top to bottom reorganisation can be the answer, has been asked to pay its fuel bills totalling some 2.6bn rupees ($53m) as suppliers start to cut supplies pending receipt of funds. The bills were due to be paid by the close of business today but as yet this news service has not received confirmation that this has been the case. The suppliers in question are: Indian oil, Bharat Petroleum and Hindustan Petroleum who all in conjunction halted supplies to the airline for almost four hours yesterday.

This is a warning from the fuel companies and the amount in question is a token number as the total outstanding fuel bill is a massive, airline-busting $40bn. Even more surprising is the fact that the unpaid fuel bill has been allowed to get so high because last year the airline was put on a cash-and-carry basis. Short-sightedly the oil companies put the airline back on 90 days terms of trade a few months ago following government pressure. Indeed as news that fuel was being denied broke, Nasim Zaidi, India’s civil aviation secretary, said he had requested the firms not to halt supplies saying:  “I have spoken to the petroleum secretary not to disrupt supplies and he has assured me [that they will not be stopped].”

 

Here is no question that the Indian government is holding Air India above water whilst at the same time their economy is faltering. Will this situation continue? If it does not the airline will collapse.

Victoria
By Victoria February 3, 2012 18:25
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