Atlantic Airways reports growth in challenging market

Atlantic Airways, the national carrier of the Faroe Islands, has recorded a three per cent year-on-year increase in revenue in the second quarter of 2012. The company remains on target to meet its forecast result for the year, despite a number of factors that impacted negatively on the result.

These included higher fuel costs, a stronger dollar, weakening yield and ongoing reduced demand in the European charter sector.

The period saw the successful introduction of Atlantic Airways’ new Airbus A319 and of a leased AW 139 helicopter for use on a contract to support Statoil exploration activities in Faroese waters.

The airline continues to anticipate a result for 2012 somewhere between its results for 2010 and 2011. In 2011 it recorded a profit of 22.5 million Danish krone (DKK) (£2.42 million) after tax and, in 2010, it recorded a profit of DKK 12.3 million in 2010 (£1.32 million).

Revenue in the second quarter rose to DKK 122.8 million (£13.09 million) from DKK 118.8 million (£12.66 million) in the corresponding period in 2011. The rise is mainly down to increased activity in the helicopter segment, but the result before tax decreased to a profit of DKK 6.8 million (£725,000) compared with a profit of DKK 12.1 million (£1.3 million) in the second quarter of 2011.

The airline’s Q2 report states: “The main explanatory factors for the lower result are higher capital costs because of the new Airbus A319 and leased AW 139, as well as a lower contribution from charter and ACMI* activity in Europe.

“A number of other factors impacted negatively on the result, including a sharp increase in fuel costs, a considerable decrease in load factor, lower passenger yield, a stronger US dollar and costs related to the phasing-in of the new Airbus.

The report notes the successful introduction of the new Airbus and comments: “Experience from the first four months is positive and meets expectations, however a full-year cycle will provide a better understanding of the overall impact.”

Chief Executive Magni Arge comments: “The introduction of a factory-new Airbus 319 equipped with RNP AR navigational aid system has changed the aviation environment in the Faroe Islands. We have not seen all the impact yet, but improved regularity, enhanced safety, greater comfort, new destinations, reduced CO2 emissions and lower unit costs are some of the benefits we will optimise in the future.

“However it is the helicopter operation which has shown its true potential in the second quarter and we look forward to working with Statoil during its exploration campaign in Faroese waters in Q3.”

EBITDA (earnings before interest, tax, depreciation and amortisation) for the first half of 2012 were DKK 31.6 million (£3.36 million), compared with DKK 32.2 million (£3.43 million) for the first half of 2011, a decrease of two per cent. The result before tax for the first half of 2012 amounted to DKK 1.5 million (£160,000), compared with DKK 9.5 million (£1.01 million) in 2011.

Passenger numbers on scheduled services increased by four per cent in the first half, compared with the first half of the previous year, and increased by one per cent in the second quarter, compared with the second quarter of 2011. Passenger numbers in the second quarter were negatively impacted by the seasonal effects of the Easter period and a later school holiday start, in June.

The load factor on scheduled services decreased in the first half from 77 to 72 per cent, compared with the first half of 2011, and decreased from 81 to 71 per cent in the second quarter of 2012, compared with the same period last year, owing to increased seat capacity since the new Airbus 319 aircraft entered service. Adjustment of capacity led to an improved load factor in May and June, compared with April, when the load factor was considerably lower than the year before.

Oil activity and fluctuations related to holiday seasons will support traffic development in Q3 and campaigns to support traffic in Q4 are expected to increase this in the second half of 2012. The Airbus operation is expected to support a lower unit cost and decrease irregularity, as well as opening up new initiatives in the leisure segment during winter 2012.

Outlook for charter and ACMI are still lower, but in Q3 capacity provisions for tour operators out of Denmark, as well as air logistic support to offshore activity, are stable, while outlook for Q4 is more questionable.

The report concludes: “Fuel prices and external economic factors are still unpredictable and are capable of having a significant impact. We therefore remain cautious in our guidance as to financial performance in 2012 and still expect to reach a result somewhere between the 2010 and 2011 levels.”