PJSC Aeroflot today announces its financial results for the first quarter ending 31 March 2020 (Q1) in accordance with Russian Accounting Standards (RAS). RAS results are presented on a non-consolidated basis.
Key results in accordance with RAS, RUB million
Q1 2019
Q1 2020
Change
Revenue
114,026
100,867
(11.5%)
Cost of sales
(133,039)
(123,264)
(7.4%)
(Gross loss)
(19,013)
(22,398)
17.8%
(Net loss)
(16,850)
(16,139)
(4.2%)
Comments on Q1 2020 RAS financial results
Positive trends seen in Q4 2019, including yield growth and a reduction in operating costs, continued in January 2020 and should have supported an improvement in profitability and the overall financial result for the reporting period. However, the unprecedented impact on the global aviation industry of the spread of the novel coronavirus (COVID-19) effectively led to the complete halting of all international flights, as well as a significant decrease in passenger numbers on domestic flights. This cancelled out the positive trends seen at the start of the year, and had a significant negative impact on PJSC Aeroflot’s financial result in March.
Trends in the financial results are confirmed by operating results. In February 2020, the impact of COVID-19 was limited to a decrease in demand and load factors on flights between Moscow and destinations in China, and a knock-on network effect on transit traffic; Aeroflot airline’s passenger turnover decreased by 4.1% as a result. In March, by contrast, passenger turnover decreased by 43.6% as flights to other destinations were halted and indicators began to decline on domestic routes. As a result, passenger turnover for Q1 as a whole decreased by 17.9%.
Lower passenger numbers drove a decrease in revenue for Q1 2020. Revenue for the period was RUB 100,867 million, down 11.5% year-on-year. While yields increased by 7.5%, a reduction of 9.1 p.p. in the load factor led to a decrease in RASK of 5.5% year-on-year.
Cost of sales in Q1 2020 was RUB 123,264 million, down 7.4% year-on-year.
The key driver of the reduction in cost of sales was a decrease in capacity of 6.6%, which led to a reduction in variable costs dependent on operational volumes. Individual cost items that decreased included fuel, due primarily to fewer flights being operated; airport servicing expenses; and in-flight passenger servicing costs. Operational fixed costs did not change materially in March even as operational volumes decreased, although there was a small decrease in leasing costs year-on-year due to the decommissioning from the fleet of six aircraft leased by PJSC Aeroflot. At the same time, maintenance costs increased slightly due to planned work that took place as scheduled. Due to the increased focus on passenger safety and mitigation of the spread of the coronavirus, additional funds were allocated for enhanced pre-flight and aircraft disinfection procedures.
Aeroflot continued implementation of extensive additional measures launched in 2019 to optimise operational and non-operational costs, including management remuneration, general business expenses, and consulting and marketing costs, including a complete halt of advertising activity. The reduction in administrative costs, as well as additional reduction on booking system costs as a result of lower demand and the suspension of new bookings for the upcoming period, led to an overall reduction in SG&A of 21.8%.
The rapid deterioration in the situation across the sector in March due to the spread of COVID-19 required a number of immediate cost-optimisation initiatives to reduce the net loss, which for Q1 2020 was RUB 16.1 billion. This result was comparable to a result for the year-ago period (a loss of RUB 16.8 billion), which was unusually high as a result of substantial pressure on costs from fuel prices and currency factors.
The aviation industry is facing an extremely challenging situation including a significant decrease in demand and bookings for the coming months amid restrictions and flight bans, as well as limited possibilities to optimise fixed costs, including the need to retain key flights and operational staff. The company is restructuring its liabilities, and management is in constant dialogue with partners to improve terms and conditions and optimise payment schedules. However, the virtual standstill of flights in April will lead to a significant deterioration in the financial result for the second quarter.