Transaero's first nine month figures for 1999 show significant reduction in costs excluding fuel and a glimmer of potential profitability

Published: 11/30/1999

Transaero has reported its financial results for the nine months ended 31st October 1999. Since August 1998, the airline has made significant reductions in its fleet, routes and staff, in order to cut costs radically and so survive the impact of declining traffic volumes. Even so, over the accounting period, the number of flights has declined by some 50%, to 6144 and passenger traffic, at 450,000, has also virtually been halved compared to the first nine months of 1998. According to Transaero, first quarter 1999 losses amounted to Rb 290.9m ($12.7m), before its restructuring took effect. In the second quarter of 1999, the airline generated a profit of Rb 15.9m ($0.65m) and a further profit of Rb 57.7m ($2.32) in the third quarter. These increases, however, are also reflective of the seasonal nature of the Russian air transport market, and no comparable figures for 1998 have been provided. Sales increased by 37.5% in ruble terms over the period, to Rb 1613m from Rb 1173m during the first nine months of 1998. In dollar terms, sales decreased by 49%, from $128.5m in the first nine months of 1998 to $65.0m in 1999. This is the result of ruble devaluation and decreased capacity. The losses incurred during the first quarter of the year have not been adequately offset by profits generated in the following two quarters, so making it highly unlikely that the company will break even by the end of 1999, especially given the expected lower volume of traffic in the fourth quarter. While the company claims to have cut costs elsewhere, operating costs have risen from Rb 301.7m ($12.32m) to Rb 401m ($16.15m), largely owing to the soaring costs of aviation fuel. However, its accounts payable over the period have been reduced from $120m pre-crisis to $41m. Transaero"s winter schedule comprises scheduled flights to 25 cities in Russia and to ten countries, including CIS. It now operates 14 flights per week to Israel, compared to eight in 1998. The airline intends to start flying into London Heathrow in 2000. The picture is consistent with previous reports, suggesting that Transaero is putting a brave face on a difficult situation (www.concise.org. 13th April 1999, 15th July 1999, 25th August 1999). While there are some positive indicators, the corner has by no means been turned and earlier claims that 1999 would yield a profit seem as over-optimistic now as they were then.

Article ID: 1146