Substantial reductions in Aeroflot Q1 losses, but not much explanation of why

Published: 7/27/1999

The release of Aeroflot's Q1 figures under Russian Accounting Standards (RAS) shows a seemingly substantial improvement in the company's adjusted net losses. The published figures show an improvement from the loss in the Q1 1998 of -$51 m to the loss in the Q1 1999 of -$8 m. Sales in the same period declined by -21% and operating costs fell by -28%. Traditionally the first quarter is a loss making quarter for Aeroflot with the collapse of passengers as Russian avoid the weather and don't travel. Aeroflot therefore experience falls of passengers from around 1.55 million between July-September down to 910,000 during the January - March period. Despite this fact however, the figure at first glance do look remarkably good given that: -prices declined by -16% during 1998 and have only recent showed signs of firming -passenger volumes were only up by 3.5% Q1 98 on Q1 99 -Aeroflot flew a winter schedule that was 7.1% larger than the Q1 98 -Domestic routes that yield only 67% of the international routes grew from 5% of volume on 1997 to 16% in 1998. -Cargo yields also fell for 1998 down by -5% largely in the latter part of the year, with no improvement in the Q1 of 1999. Aeroflot has had some savings on the cost side as devaluation has brought down the costs of staff and inputs, particularly in fuel, where prices within Russia remained constant in roubles during the period. In fact labour costs overall fell by 23% in dollars in 1998. The lack of detail in the Aeroflot statement however and the nature of cash accrual accounting within RAS suggests that the figures may be flattered by not fully taking into account lease payments for example, which in 1998 where 13% of total costs, we are however taking guesses at this point. Costs savings are continuing to be made at Aeroflot in areas such as maintenance where Aeroflot has started to undertake some of its own work at substantially lower cost than employing external contractors such as Lufthansa. Technik. The company has also been working hard to source its inputs within Russia and reduce some of it foreign currency exposure. Unless Aeroflot proffer any more information, we can only conclude that the first quarter was probably slightly better than expected and look for more detail at the half-year using International Accounting Standards.

Article ID: 701