Alitalia Profits Slide - Fuel Costs Blamed

Nov 15, 2000

Italian flag carrier Alitalia said fare increases and strong traffic growth failed to absorb rises in fuel prices as it reported a sharp drop in third-quarter profits yesterday.

The Rome-based airline saw pre-tax profits slide 37 per cent to L59bn (USD$26m) from L94bn last time in the three months to September 30. Operating profit fell to L76bn from L106bn last time.

Strong passenger and cargo traffic growth in the summer months, traditionally the best period of the year for airlines in the northern hemisphere, combined with fare rises helped lift revenues by 10 per cent to L2,938bn.

The continued high price of oil, however, added a further L165bn to the fuel bill in the period. Other costs "virtually remained stable" over the period, the airline said, despite a near 10 per cent rise in the number of employees to 23,600.

Alitalia is under renewed scrutiny from the European Commission after failing to deliver on the restructuring plan it committed to in exchange for L2,750bn in state aid in 1997.

The airline, which has lost L283m in the nine months so far, said fuel hedging - the process of fixing the price in advance by buying in the futures market - would off-set much of the impact of the higher oil price in the final quarter of the year.

It described the overall outlook as positive but warned that there were a "few areas of tension", including possible disputes with its unions and the situation in the Middle East.

It said its planned sale and lease-back of 20 MD80s would be completed in November.

Domenico Cempella, Alitalia chief executive, is expected to unveil his long-awaited strategy for turning the airline around by the end of this month.

The company said it was on track to make an operating loss of L347bn for the full year, which it expected to be off-set by extraordinary profits.

In contrast German carrier Lufthansa, which had locked in 90 percent of its fuel requirements for the current year at an average of USD17.80 per barrel, in presenting its nine month results announced a rise of almost 51 percent in profit to USD$684 million compared with the results of the same period in 1999.

In spite of hedging, Lufthansa saw its fuel bill jump by 57 percent in the past nine months but expects that the year 2000 will be one of the best ever in the company's history.

http://news.airwise.com/stories/2000/11/974326853.html

-- Martin Thompson (mthom1927@aol.com), November 15, 2000