High restructuring expenses impact airberlin’s 2014 earnings – 2015 outlook significantly improved
Negative preliminary EBIT of -278.8 to -303.8 million euros includes restructuring and one-off expenditures of 85-110 million euros
Disappointing yield development responsible for poor result – unit costs dropped by 4.6 percent in 2014 from previous year
With the new CEO a fundamental realignment of business model has been launched – Q1 2015 expected to improve by about 25 million euros compared to the same quarter of the previous year
airberlin’s preliminary operating result (EBIT) stands at -278.8 to -303.8 million euros in the 2014 fiscal year (2013: -231.9 million euros) – a business year dominated by high restructuring costs. Total revenue for 2014 is 4.16 billion euros (2013: 4.15 billion euros) – an increase of 0.3 percent from the previous year.
Allowing for expenses of 85-110 million euros, which were incurred for the turnaround, the preliminary adjusted EBIT stands at -193.3 million euros. Restructuring measures include, inter alia, additional expenses associated with fleet harmonisation and workforce-related activities, among other things. The amount of the restructuring related measures to be recognised for the 2014 fiscal year is currently undergoing final review. As a result, the final Consolidated and Annual Financial Statement for 31 December 2014 is expected to be presented at the end of April 2015.
The preliminary net income in fiscal 2014 was -361.7 to -386.7 million euros (2013:
-315.5 million euros). As of 31 December 2014, Air Berlin PLC’s cash position amounts to 259.2 million euros (financial year 2013: 223.1 million euros).
airberlin’s average yield dropped to 120.1 euros in 2014, down from 121.0 euros in the previous year. While the yield dropped by 2.1 percent from the previous year in the first three quarters of 2014, the fourth quarter yield increased by 4.0 percent due to the successful restructuring of the network in the fourth quarter. This positive trend continued in the first months of the current 2015 fiscal year due to continued further improvement of yield management. The management expects a yield increase of approximately 4.2 percent (about 4.9 EUR/passenger) from the previous year for the 1st quarter of 2015.
In 2014, the number of flights increased by 2.1 percent and available seat kilometres (ASK) were up 3.1 percent. At 83.5 percent, the capacity utilisation fell slightly below the previous year’s capacity utilisation of 84.8 percent. The total revenue per available seat kilometre (RASK) was 7.05 euro cents (previous year: 7.24 euro cents).
Turnaround measures already introduced in the previous year meant that unit cost per available seat kilometre (CASK) for 2014 decreased by 4.6 percent from the previous year, down from 7.75 to 7.40 euro cents.
Passenger numbers on codeshare routes with oneworld® partners have risen, boasting growth of 9 percent to 1.113 million. The partnership with Etihad Airways also remained on a positive trend in 2014. Passenger numbers on shared routes have grown during the reporting period to a total of over 600,000, an increase of nearly 7 percent. Additional codeshare routes from Berlin, Stuttgart and Vienna to Abu Dhabi have contributed to further growth.
Overall, company results for 2014 are well below airberlin’s initial expectations. Based on the already launched fundamental realignment of the business model, airberlin expects significantly improved results for the current 2015 fiscal year that will lay the groundwork for the targeted return to profitability in 2016.
The new Executive Director and CEO Stefan Pichler outlines the redesign of the business model as follows:
Redesign of the business model, targeting profitability by 2016
For the future, airberlin has positioned itself as a European multi-hub airline with a strong market position in attractive catchment areas and competitive advantages such as lower unit costs than other network carriers, higher system integration of tour operator in the most important markets, improved coordination with suppliers and employees ready for a change.
Key elements of the business redesign
Phase 1 – Enhanced management focus on operations as well as a refined set up of corporate structures and processes (up to September 2015)
Key performance indicators (KPIs) and incentives already introduced at the top three management levels for 2015
Realignment of corporate structures along the airline value chain to drive performance
Review of network strategy and planning, scheduling, revenue management and sales channel management while promoting employee input
Phase 2 – Market and capacity adjustments (up to March 2016)
Short-term capacity optimisation from March to June 2015 (minus 4.5 percent) implemented
Significant yield improvements unlocked through new revenue management strategy
Realigning of different sales channels and increase of partner airline market shares
Increase of market shares in strategic target markets and airberlin hubs and new partnerships of withdrawal from non-strategic markets
focus on our core business
Realignment cost structure following capacity adjustments
Phase 3 – Profitability and growth (targeted for commencement in April 2016)
Developing multi-hub strategy as well as new long-haul destinations
Deciding on platform growth strategy as well as outsourcing of non-core activities
Improving IT infrastructure as the basis for future growth
The starting basis for the redesign of the airberlin group business model is:
Further expansion of partnerships and alliances
A key element to strengthen airberlin is to realize cost advantages through synergies with Etihad Airways as well as other Etihad Airways partners and enhance performance on the associated codeshare routes. More than 90 joint codeshare routes and 2,600 airberlin and Etihad Airways codeshare flights each week speak for themselves.
Among other benefits, synergies enabled the codeshare partnership to be signed with Alitalia in 2014:
Optimised codeshare flights to and from Berlin, Dusseldorf, Milan-Linate and Rome offer our passengers more comfort
airberlin and Alitalia carry out more than 400 weekly non-stop codeshare flights between Italy and Germany, Austria and Switzerland
Reciprocal frequent flyer agreement
The close collaboration within the global oneworld airline alliance, which includes American Airlines, British Airways, Iberia, JAL, Finnair, Royal Jordanian and the Russian S7 Airlines, consolidates our global market position. Our 241 joint codeshare routes and almost 6,500 weekly codeshare flights provide our guests with a comfortable, first-class worldwide route network. In the United States alone, one of the most important aviation markets, airberlin operates codeshare flights with American Airlines to 57 destinations. This underlines the significance of our membership in oneworld in a fiercely competitive market environment. airberlin intends to strengthen the existing partnerships within the oneworld alliance and add further codeshare agreements.
Profitable NIKI subsidiary with low unit costs
NIKI’s cost structure allowed it again to be very profitable in 2014, thereby setting a clear course with good growth perspectives thanks to an excellent unit cost position. NIKI is thereby following the clear strategic direction within the airberlin group to be the growth carrier within the D-A-CH region with a clear focus on tourism. NIKI will soon be flying an all-Airbus fleet in order to benefit from all the associated advantages.
Realignment and focusing of the route network
By restructuring its route network in 2014, airberlin made a first step towards strengthening its core markets by eliminating unprofitable routes from its network. Main markets are served with higher frequencies. Above all, a main focus is on tour operator sales. With a 65-percent share of sales in the D-A-CH region and collaborations with over 100 travel tour operators, airberlin has positioned itself as a strong player. Starting May 2015, airberlin will introduce a tour operator and travel agency advisory board that will make this collaboration even more efficient. airberlin expects to further expand its market leadership in Berlin, Dusseldorf and Palma de Mallorca as well as its strong position in other important destinations in Germany, Austria and Switzerland.
Increased efficiency through fleet harmonisation
The short- and medium-haul routes in the European route network will soon be operated with a uniform fleet of narrow-body jets. The standardisation of the Boeing 737 fleet to the Airbus A320 family should be completed by the end of 2016 and will lead to a significant improvement to the cost structure due to the reduced complexity.
Professional sales and revenue management strategy
airberlin will and must significantly increase its commercial efficiency. The use of a new and efficient revenue management system will enable much better capacity and yield management, thereby increasing earnings significantly. At the same time, this system will enable the implementation of a new pricing and yield management policy and improve the quality of revenue forecasts and finally enhance our RASK performance.
In 2015, airberlin will also implement a new distribution strategy to communicate with its different target groups and exploit all market segments. Digital communication and distribution dominate our customers’ demand and purchasing behaviour more and more, accounting for a larger portion of total airberlin group sales.
The new airberlin 24/7 service offensive, whereby all customer inquiries will be completely processed within seven working days, will be launched in June 2015. Every passenger will receive feedback within 24 hours and every issue should be resolved within seven days. In this way, airberlin is investing in its customers, thereby improving its service quality.
Stefan Pichler, who became the new Executive Director and Chief Executive Officer in February 2015, comments the planned realignment: „We can do it. For our customers, our employees and our shareholders. In the first quarter of 2015 our clean operating performance will be improved by around 25 million euros compared to the same quarter of the previous year (Q1 2014: -182.8 million euros). Our new roadmap is characterised by ambitious but realistic objectives. In 2015, we will break the negative performance spiral of the past years by a significant redesign of our business model. We are currently focusing on all strategic and operational measures. I will personally put all my energy into making it happen.”
Source / Author: airberlin