Monday, 4 March 2019

Aeroflot issues 2018 results

                                      The Russian Aeroflot Group has released its consolidated financial results this week for the three months and full year ending 31st December 2018 which show the big losses increased for the leading Russian commercial airline group. 2018 also saw the group take 55.7 million people for a ride on its aircraft, up just over 11% over 2017 figures.


Andrey Chikhanchin, PJSC Aeroflot Deputy CEO for Commerce and Finance, said: “In 2018 Aeroflot Group carried 55.7 million passengers, an 11.1% increase year-on-year. Growth of operational metrics resulting from the expansion of our route network and additions to the fleet were accompanied by significant developments in the Group’s strategy. Aeroflot, our flagship airline, moved domestic flights to a new, modern terminal at Sheremetyevo airport, leading to an increase in service quality on the ground. Rossiya moved its scheduled flights from Vnukovo to Sheremetyevo, leading to improved transit connectivity with Aeroflot’s core network. Pobeda significantly increased growth rates, expanding the availability of its low-cost product offering. Finally, another important landmark was the updating of the Group’s long-term targets for the next five years."


Andrey Chikhanchin continues, “The most significant factor affecting the Group’s financial results for 2018 was the unprecedentedly fast increase in the average cost of jet fuel, as well as depreciation of the ruble. Across the Group, jet fuel prices increased by 36%, which at the Group’s consumption volumes led to additional cost of RUB 48 billion. The depreciation of the ruble created additional pressure on the financial results, given that almost half of the Company’s costs are FX-denominated.

“In this situation, a special optimisation programme was launched in addition to existing measures to boost operational efficiency and reduce costs. The programme focused on active capacity and revenue management in addition to direct cost reduction, and has already delivered results: excluding fuel, CASK for the full year increased by just 0.8%, despite increasing currency pressures on FX-denominated cost lines. We were thus able to limit increases in total unit costs, including fuel, to 9.2%. In a climate in which domestic consumers are being conservative with their travel spending, we were able to generate RASK growth of 4.9% while maintaining load factor levels.

“High fuel prices and excess capacity in the market persisted during the low season in Q4. The correction in oil prices was reflected in jet fuel prices only in December, but had a limited effect, while average jet fuel prices remained above the levels of the previous year. Currency pressures on operating costs in Q4 did not weaken, but rather strengthened. These factors explain the increased loss for the final quarter of the year. 

“However, despite the record increase in the price of jet fuel and the depreciation of the ruble, thanks to its extensive optimisation programme the Group was able to record a profit for the year of RUB 5,713 million.”


Key financial highlights
RUB million, unless stated otherwise
4Q 2018
4Q 2017
Change
12M 2018
12M 2017
Change
Revenue
 145,225
   128,161
     13.3%
   611,570
   532,934
     14.8%
EBITDAR
  11,522
     20,792
    (44.6%)
   122,479
   121,808
       0.6%
EBITDAR margin
    7.9%
     16.2%
(8.3) p.p.
      20.0%
     22.9%
(2.9) p.p.
EBITDA
(13,591)
       2,709
-
     33,598
     56,015
    (40.0%)
EBITDA margin
-
       2.1%
-
       5.5%
     10.5%
(5.0) p.p.
(Loss) / profit for the period
(16,777)
    (4,089)
-
       5,713
     23,060
    (75.2%)

Key operating highlights
4Q 2018
4Q 2017
Change
12M 2018
12M 2017
Change
Passengers carried, thousand PAX
13,462
11,789
     14.2%
55,710
50,129
     11.1%
- international
5,978
5,329
     12.2%
24,737
22,550
      9.7%
- domestic
7,483
6,460
     15.8%
30,973
27,579
     12.3%
Revenue Passenger Kilometres, million
34,723
30,841
12.6%
143,151
130,222
9.9%
- international
20,524
18,627
     10.2%
83,249
77,034
      8.1%
- domestic
14,199
12,214
     16.3%
59,901
53,188
     12.6%
Available Seat Kilometres, million
43,682
38,457
     13.6%
173,075
157,211
     10.1%
- international
26,663
23,610
     12.9%
102,843
93,429
     10.1%
- domestic
17,019
14,847
     14.6%
70,231
63,781
     10.1%
Passenger load factor, %
79.5%
80.2%
 (0.7) p.p.
82.7%
82.8%
  (0.1) p.p.
- international
77.0%
78.9%
 (1.9) p.p.
80.9%
82.5%
  (1.5) p.p.
- domestic
83.4%
82.3%
    1.2 p.p.
85.3%
83.4%
    1.9 p.p.
In 2018, Aeroflot Group carried 55.7 million passengers, up 11.1% year-on-year.
Revenue
4Q 2018
4Q 2017
Change
12M 2018
12M 2017
Change
Passenger traffic revenue
   124,318
107,888
  15.2%
   534,292
   458,390
 16.6%
  - scheduled passenger flights
   117,046
 99,803
 17.3%
   496,454
   427,529
16.1%
  - charter passenger flights
       7,272
   8,085
(10.1%)
     37,838
     30,861
 22.6%
Cargo flight revenue
       6,061
    5,226
 16.0%
     18,900
     16,526
 14.4%
Other revenue
     14,846
 15,047
  (1.3%)
     58,378
     58,018
   0.6%
Total revenue
   145,225
128,161
  13.3%
   611,570
   532,934
 14.8%
In 2018, Aeroflot Group’s revenue increased by 14.8% year-on-year to RUB 611,570 million.
Revenue from scheduled passenger flights increased by 16.1% year-on-year to RUB 496,454 million, driven by an increase in passenger traffic. Revenue growth was affected by an increase in yields, primarily on international routes, due to the weakening of the ruble against the euro and the consequent effect of this on FX-denominated revenue.
Revenue from charter flights increased by 22.6% year-on-year to RUB 37,838 million, due among other factors to an increase in unit yields on charter flights and the expansion of Rossiya’s charter programme
Cargo revenue rose by 14.4% year-on-year, to RUB 18,900 million as cargo and mail volumes grew by 11.2%.
Other revenue increased by 0.6% year-on-year to RUB 58,378 million due to a rise in FX-denominated revenues from agreements with other airlines, which was offset to a significant degree by a decrease in maintenance of aircraft belonging to other airlines, as well as the introduction of the new IFRS 15 standard, which affects the classification of service fees for reservation changes between other revenue and revenue from scheduled passenger flights.
Operating costs
RUB million, unless stated otherwise
4Q 2018
4Q 2017
Change
12M 2018
12M 2017
Change
Aircraft servicing and passenger services
   28,321
     21,712
     30.4%
   108,589
     96,418
 12.6%
Staff costs
   21,502
     22,292
      (3.5%)
     82,817
     82,801
    0.0%
Operating lease expenses
   25,113
     18,083
     38.9%
     88,881
     65,793
  35.1%
Aircraft maintenance
    13,518
     10,186
     32.7%
     45,527
     36,433
  25.0%
Sales and marketing, administration and general expenses
      9,265
     12,293
    (24.6%)
     31,743
     36,139
(12.2%)
Depreciation, amortisation and customs duties
      3,598
       4,160
    (13.5%)
     13,941
     15,604
(10.7%)
Other net expenses
   11,198
       8,145
     37.5%
     38,551
     36,650
   5.2%
Operating costs less aircraft fuel
  112,515
     96,871
      16.1%
   410,049
   369,838
 10.9%
Aircraft fuel
    49,899
     32,741
     52.4%
   181,864
   122,685
  48.2%
Total operating costs
 162,414
   129,612
      25.3%
   591,913
   492,523
  20.2%
In 2018, aircraft fuel costs increased by 48.2% year-on-year to RUB 181,864 million. This was due to a 36% year-on-year increase in the average price of aircraft fuel in rubles amid changes in the price of oil, as well as an increase in flight numbers and flying time.
Operating costs, excluding aircraft fuel costs, increased by 10.9% year-on-year to RUB 410,049 million.
Expenses related to aircraft servicing and passenger service amounted to RUB 108,589 million, a 12.6% increase year-on-year, due primarily to the growth of passenger traffic and increased airport fares. Optimisation of service costs helped to reduce the rate of increase of these expenses.
Staff costs remained at RUB 82,817 million. Despite an increase in salaries for aircraft captains effective from the start of 2018 and an increase in staff numbers to support the Group’s operational growth, the Group was able to reduce the rate of growth of these expenses by decreasing remuneration paid to senior management as well as through revaluation of the reserve for future payments.
Operating lease expenses rose to RUB 88,881 million, a 35.1% increase year-on-year, due to significant expansion of the fleet (net increase of 47 aircraft, or 16.8% year-on-year), as well as due to a year-on-year increase in LIBOR (average three-month LIBOR increased by 1.05 p.p. to 2.31%).
Aircraft maintenance costs grew by 25.0% year-on-year to RUB 45,527 million. Maintenance costs were significantly affected by an increase in volumes of technical maintenance due to expansion of the fleet and the changing composition of regular maintenance work in the comparable periods, as well as FX effects.
Selling, general and administrative expenses (SG&A) decreased by 12.2% year-on-year to RUB 31,743 million, following the launch of the programme to optimise costs, including marketing and advertising spend.
Amortisation and customs tariffs decreased by 10.7% year-on-year to RUB 13,941 million, due among other factors to the ongoing reduction in the number of aircraft on finance leases.

Other expenses increased by 5.2% year-on-year to RUB 38,551 million amid an increase in commissions charged by banks and costs for services associated with communication and the booking system.
As a result of these factors, EBITDAR totalled RUB 122,479 million. The EBITDAR margin was 20.0%.
Non-operating gains and losses
RUB million, unless stated otherwise
4Q 2018
4Q 2017
Change
12M 2018
12M 2017
Change
Operating (loss) / profit
(17,189)
 (1,451)
11.8х
     19,657
     40,411
(51.4%)
Loss from investments, net
    (686)
      (36)
 19.1х
        (689)
        (144)
  4.8х
Finance income
853
     778
9.6%
       4,164
       7,127
   (41.6%)
Finance costs
 (2,539)
 (1,894)
 34.1%
   (7,904)
    (8,225)
    (3.9%)
Realised hedging result
 (1,863)
  (1,387)
 34.3%
    (6,788)
    (5,613)
 20.9%
Share of results of associates
         75
        30
2.5х
         254
         170
     49.4%
Results from disposal of companies
   1,240
       -  
            -  
       1,240
            -  
            -  
(Loss) / profit before tax
(20,109)
  (3,960)
5.1х
       9,934
     33,726
  (70.5%)
Income tax
   3,332
    (129)
-
   (4,221)
  (10,666)
  (60.4%)
(Loss) / profit for the period
(16,777)
 (4,089)
4.1х
       5,713
     23,060
  (75.2%)
In 2018, finance income decreased by 41.6% year-on-year to RUB 4,164 million, reflecting lower earnings from exchange-rate differences, as well as a general trend towards lower interest rates in Russia, which affects interest income from deposited free cash.
Finance costs decreased by 3.9% year-on-year to RUB 7,904 million, primarily due to a reduction in the cost of debt servicing on the back of significant debt reduction in 2017.
The realised loss from hedging of RUB 6,788 million was attributable to a realised result related to hedging of USD-denominated revenue through USD-denominated lease obligations.
Aeroflot Group’s net profit for 2018 amounted to RUB 5,713 million, down 75.2% year-on-year.
Debt and liquidity
RUB million, unless stated otherwise
31.12.2018
31.12.2017
Change
Loans and borrowings
           3,486
3,181
           9.6%
Finance lease liabilities
         93,224
100,689
          (7.4%)
Pension liabilities
              908
922
          (1.5%)
Total debt
         97,618
104,792
           (6.8%)
Cash and short-term investments
         30,148
54,909
         (45.1%)
Net debt
         67,470
49,883
          35.3%
Net debt / EBITDA
              2.0x
0.9x
-