Brussels Airlines future and financial perspective

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JAFflyer
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Re: Brussels airlines future and financial perspective

Post by JAFflyer »

I choose to learn in this thread the following: the Brussels airlines future and financial perspective...

teddybAIR
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Re: Brussels airlines future and financial perspective

Post by teddybAIR »

JAFflyer wrote:I choose to learn in this thread the following: the Brussels airlines future and financial perspective...
OK:

2013 financial statement (latest available) states the following:
> balance total of 457m€
> merely 14.2m€ of that is company equity
> last communicated P&L since then (B. Gustin): -21,8m€ (assuming state aid a rato of 15m€-> when correcting for this: -36,8m€)
> 15m€ state aid highly likely not to be approved by EU

That means that without augmenting the capital, Brussels Airlines will now operate with a negative equity (simple: it ows more than it owns).

It is in the above context that Brussels Airlines is being challenged by LCC's who will bring it new pax for sure, but have no doubt: they will put heavy price pressure on the average brussels airlines ticket. Meanwhille also Vueling is contemplating opening a base in brussels. If you think this is because BRU is such an interesting airport, think again. Their analysts can also read a financial statement and know that brussels airlines is at least probable to bankrupt in the mid term. It will be the companies that are able to exploit that void very fast who will be able to capture a significant part of the market in the longer run.

From my experience, I see similarities with other liberalised markets (I've worked for incumbant postal operators, energy suppliers, telco companies, etc.) but clearly you only want to look at the financial future of a company from an inside perspective...good luck with that! There's a reason why there are 5 forces in Porter's strategic framework: to open your eyes for your environment.

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RoMax
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Re: Brussels airlines future and financial perspective

Post by RoMax »

Benchmarking, comparing with and looking at other industries is very important. I always remember a senior Schiphol manager commenting that one of the biggest dangers of structural developments, improvements and 'revolutions' in aviation is the narrowminded view of many 'leaders' in the world of aviation who refuse to look beyond their own small sector. I can not disagree with him!

Btw, regarding SN. April 2014 was their best month ever. They transported a total of 585,477 passengers, a growth of 12% compared to april 2013 (that equals to about 62,000 passengers). The European network recorded a growth of 10.6% and achieved a seat loadfactor of 77% (4.5 percentage points more than in 2013). The long haul network recorded a growth of 20.3% (of course there is still the IAD factor which was not being operated in april 2013 yet). The overall passenger loadfactor increased with 3.7 percentage points to 72.9%.
Growth was for a large part thanks to the Easter holidays, but also demand from business passengers, the new flights to Sevilla and Athens (which both prove to be succesful relaunches), the long haul network and 'new passengers' that previously didn't fly with SN resulted in this major growth.

Also cargo doesn't stop growing, April 2014 saw 14.4% more freight kilometres compared to last year.

viewtopic.php?f=31&t=53252

teddybAIR
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Re: Brussels airlines future and financial perspective

Post by teddybAIR »

Indeed Romax. If you benchmark and trendwatch well across industries, you'll be able to recognise a threat before it is actually there and already have your response up and running. Internet threatens letter mail but created a parcel niche which is now growing into a full blown market of which we haven't seen the beginnings yet...the same goes for aviation, but you have to wanna open your eyes for a threat instead of looking away.

On Brussels Airlines' figures: those are some impressive passenger numbers, but we all know that in the end only the financial numbers will determine the final outcome. That is why these passenger numbers are encouraging, but insufficient to claim that Brussels Airlines is out of the woods yet. It is the beginning of a trend that needs to be confirmed both in passenger numbers in the coming months as in bottom line profitability at the end of the fiscal year...curious!

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RoMax
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Re: Brussels airlines future and financial perspective

Post by RoMax »

teddybAIR wrote: On Brussels Airlines' figures: those are some impressive passenger numbers, but we all know that in the end only the financial numbers will determine the final outcome. That is why these passenger numbers are encouraging, but insufficient to claim that Brussels Airlines is out of the woods yet. It is the beginning of a trend that needs to be confirmed both in passenger numbers in the coming months as in bottom line profitability at the end of the fiscal year...curious!
Indeed, operational figures is one thing, the finances another...
But mind that SN does not plan to have a profit this year. Together with LH it was decided that key investments such as new IT infrastructure, the development of a 'new' product in Europa, renovation and expansion of the lounges etc. as well as making sure SN can differentiate itself from the LCC's (instead of having a head to head competition which would purely result in a price war which SN could never win) are more important than having black numbers at the end of 2014 without making investments which could make the difference in the years ahead.

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Re: Brussels airlines future and financial perspective

Post by teddybAIR »

Fair point, if it is a decision that is formally taken with your investor. However, it is my experience that established belgian companies - certainly those incumbents who historically operated in a de facto monopoly situation - are very soft when it comes to financials. It is not ok to content oneself with a deficit merely to invest in lounges and servicing. Somewhere down the line, the investor is going to call it a day and require you to cut your expenses and finance any innovation with savings, not with extra invested funds. Ultimately, it all comes down to the company having to be able to pay a fair return or the conclusion is that it has no reason of being in the first place.

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Re: Brussels airlines future and financial perspective

Post by Air Key West »

teddybAIR wrote:Their analysts can also read a financial statement and know that brussels airlines is at least probable to bankrupt in the mid term. It will be the companies that are able to exploit that void very fast who will be able to capture a significant part of the market in the longer run.
Unfortunately, I have to agree with you.

B.air made two major mistakes so far : merging with VEX and giving LH an extension on their option to buy the remaining shares. Both will be lethal.

As to the dramatic increase in pax number recently : these figures are encouraging, but if the increase is to a very large extent only in pax buying 99 euros return tix in Europe, the increase in revenue will be minimal. But OK, better than no increase in pax numbers.
RoMax wrote: Together with LH it was decided that key investments such as new IT infrastructure, the development of a 'new' product in Europa, renovation and expansion of the lounges etc.


The visible part of the IT investment is another failed new website (second try, second failure).

Some want to make us believe that the invesment in a new product in Europe was decided before FR came to BRU. Hard to believe. It should have been there already.

As to the invesment in new lounges made together with LH : LH agreed to spend and invest money in new b.air lounges, because if b.air disappears, LH will just have to change the signs from Brussels Airlines Business / Senator Lounges to Lufthansa Business / Senator lounges.

Please, stop thinking that LH is REALLY helping and investing in brussels airlines.
In favor of quality air travel.

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RoMax
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Re: Brussels airlines future and financial perspective

Post by RoMax »

Air Key West wrote: The visible part of the IT investment is another failed new website (second try, second failure).
Aside from some communication fails (of which some in parts of the website that are barely accessed by the regular passenger) and the launch of the website without the new e-commerce platform (which, I assume, will come in combination with the updated European product), I don't see this as a failure at all. From what I heard, passengers are very happy with the new website, though it is a pitty they still have to wait for the new e-commerce platform.
Air Key West wrote: Some want to make us believe that the invesment in a new product in Europe was decided before FR came to BRU. Hard to believe. It should have been there already.
You seriously underestimate the time-to-market of a new in-flight product, including a new dedicated frequent flyer program, when ranging from the idea and intial market evaluations to the actual introduction.
Air Key West wrote: As to the invesment in new lounges made together with LH : LH agreed to spend and invest money in new b.air lounges, because if b.air disappears, LH will just have to change the signs from Brussels Airlines Business / Senator Lounges to Lufthansa Business / Senator lounges.
Oh come on, that's bullshit. Without SN, LH only needs BRU for about 15-20 daily feeding flights to MUC and FRA and some extra to ZRH and VIE. As if LH is going to let SN invest millions in new lounges with the idea of yeah, we can just swith the signs and we can use them ourself for our feeding flights. If that's the way LH thinks, they would have been bankrupt by now. Even if talking only about the new Schengen lounge which is currently under construction. Do you actually think LH would be paying rentals to BRU for a lounge which is 4 times the size of the current SN Schengen lounge, when SN would be bankrupt? That's not a little too expensive for their LH/OS/LX passengers, that's WAY too expensive.
Air Key West wrote: Please, stop thinking that LH is REALLY helping and investing in brussels airlines.
I haven't said they are really helping, neither I said they are investing. I only said they agreed with SN's management that certain investments are more crucial at this moment than having an artificial profit. LH is just acting as a passive investor. They support SN and their operations, but without actively investing their own money in it. There is nothing wrong with this and that doesn't mean LH will drop SN after 2017 or leave them to die.
Air Key West wrote:giving LH an extension on their option to buy the remaining shares.
As I have said more than once over the past year, I don't agree, I still don't.

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RoMax
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Re: Brussels airlines future and financial perspective

Post by RoMax »

Brussels Airlines continueud to grow significantly in May:

- Passengers: 582,471 (+8.3%)
- Available seat-kilometres (in millions): 1295.52 (+10.7%)
- Revenue passenger-kilometres (in millions): 925.70 (+15%)
- Freight ton-kilometres (x1000): 17,435 (+18.2%)
- Overall loadfactor (pax + freight): 63.1% (+1.3 pct point)
- Passenger loadfactor: 71.5% (+2.6 pct point)

30,829 additional passengers in Europe and 13,932 additional passengers on the long haul network.

http://press.brusselsairlines.com/83-pe ... ers-in-may

Flanker2
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Re: Brussels airlines future and financial perspective

Post by Flanker2 »

So SN's financial performance for 2013 is now available on the website of the NBB.

-No big surprises as most information was already known.
-A 27.6 million consolidated loss.
(Supposedly this includes the 15 million present from Di Rupo and friends via BRU? Not sure though.)
-Shareholder's equity (Eigen vermogen) now -38 millions, ie less then 3% of revenues. Not dramatic yet, but certainly something to not be happy about.
-Cost of staff reduced by over 7%.

SN is quiet regarding profit projections for 2014. With yields probably down on many routes with increased competition, volume is up but will it be sufficient to change the balance? I doubt it.

My opinions:
From a government standpoint the 28 million loss is subsidising 185 million worth of staff salaries, so SN is an effective employment vehicle.
From the banks' standpoint, the negative net worth isn't great as SN is a big company. But if they consider it as a form of lobbying given that they're doing the government a favor, it's not too dramatic yet. They will however keep a good look-out for future trends and respond very acutely if SN posts another big loss.
From a shareholder's standpoint, the old shareholder's remaining investment is virtually wiped out. LH benefits from having SN as a customer first, as a partner second. It beats having them as a competitor and they haven't invested much into it, so they're not happy nor unhappy about it. They'll only react to big trends, both positive or negative.
From a staff's point of view, well they've got a job and they may have to work more for the same money given the increased productivity and increasing pax volumes for the same salary. But most of their jobs are specialty jobs which are not in high demand in Belgium, so they can't easily shift to a new employer.
From a customer's standpoint, not much to write about.

Major risks for the short-term:
-Ryanair/Vueling expansion at BRU
-TK taking market share in Africa, new competitors in Africa due to passive market strategy
-Ebola virus expansion out of control in SN's main market: West-Africa. There is a risk that carriers like SN might contribute in spreading the disease into Europe.

So I think that SN is safe for now as long as it doesn't post a big loss in excess of 60 millions for 2014.

FlightMate
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Re: Brussels airlines future and financial perspective

Post by FlightMate »

In "Le Soir", Gustin estimates a positive result in 2015.

So I guess another loss in 2014 is foreseen. But probably not as bad as last year.

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sn26567
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Re: Brussels airlines future and financial perspective

Post by sn26567 »

Flanker2 wrote:Major risks for the short-term:
-Ryanair/Vueling expansion at BRU.
The latest press release of Brussels Airport said that the LCC expansion at BRU was not at the expense of established carriers, nor at the expense of CRL, but rather additional volume.
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Flanker2
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Re: Brussels airlines future and financial perspective

Post by Flanker2 »

Here are the facts though:
In May, SN's traffic grew by 45.000 pax (of which only 30.000 on shorthaul), BRU's grew by 278.000.

FR by itself has added about 150.000 seats with its arrival and VY joined the game as well.
So it's clear that FR and VY are the ones fueling this capacity/traffic increase.

FR has transfered a significant portion of its CRL traffic to BRU (no matter what the PR says), while creating additional demand. VY has created new demand but I think that so far they are doing the worst of the three.
SN is probably growing organically on the routes other than the 10 where they have the FR-VY competition.
As they are forced to sell their seats cheaper on the 10 routes, I think that they might not have a volume decrease, but if SN could attract 8% more pax without reducing yields by 8%, they would have done it already in the past.
The growth on longhaul is significant, but there again not enough to balance even a small decrease in average yields and increase in costs (additional aircraft operating IAD).

Worst of all is that despite that traffic grew 8%, this hasn't been without an increase in costs as the load factor only increased 3.8% (1.3 perc. points.) So a +8% with increased costs and probably lower yields, isn't much to be euphoric about.

If the EU denies the 15 million state aid and SN posts a 45 million operational loss this year similar to last year, that will result in a 60 million loss for 2014. So what I'm saying is that in my opinion, SN can't afford any more negative trends. Yet the risk factors are big, with new FR routes out of BRU looming around the corner and not much that could bring a positive trend.

It's difficult to invest now, but at the same time they have to. This seems to have been the problem that SN has had for many years, only that it has gotten worse and worse over the years as the cash dried out.

I only see one option left: longhaul growth using existing capacity.
Example: Free up 2 A332's for China with 5th freedom to Singapore and/or if traffic rights allow, to Japan, then compensate that by 4 HGW A321's that will do midhaul including West-Africa, TLV, DME, and the high volume leisure destinations. The 4 A321's come to replace A319/A320's, themselves replacing RJ100's that will be phased out.
This could tip the balance and swing the results in the positive while
-Reducing TK's flow of pax between Asia and Africa
-Strengthening their presence in Africa
-Reducing shorthaul dependency, low-cost competition and diversifying
-Minor O&D BRU-Asia at the expense of LH and other group airlines, but also KL/AF/BA.

An organic growth strategy will not cut it.
It's the 85th minute, one goal behind and playing defense with 10 players. The only way to turn it around is to play a smart counter.

Passenger
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Re: Brussels airlines future and financial perspective

Post by Passenger »

The figures that I see in the annual account 2013 are each of them an improvement towards 2012. I haven’t discussed this with an accountant yet (I like professional advise before concluding), but this is what I see in the balance, as published by the NBB:

turnover 1.138.160.359 (2012 was 1.113.477.437)

operational result -28.169.205 (2012 was -91.753.866)

result before taxes -29.705.447 (2012 was -95.066.766)

nett result -21.954.423 (2012 was -60.689.594)

(cumulated loss therefore -95.795.188)

a very solid cash position (+125 mio Euro) (plus 55 mio Euro from the LH credit line) (plus SN Airholding assistance)

own assetts (eigen vermogen /capitaux propres) +17.302.308 (2012 was +14.256.732)

number of passengers +1,6%

load factor +2,4%

ASK (Available Seat Kilometer) : +5,3%

block time -2%

average cost reduction -10%

fuel hedging 74%

My conclusion - although I haven't seen the full annual account: the recovery program seems to work, staff performances have increased, excellent marketing efforts pay off (Tomorrowland 2013, Brazil 2014).

Flanker2
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Re: Brussels airlines future and financial perspective

Post by Flanker2 »

I won't deny that there is an improvement.
But what is it owed to?

Marketing and restructuring?
Maybe so partially for restructuring, marketing I doubt it.

If we compare 2013 vs. 2012, I think that the EUR/USD plays a vital role, as I said before.

The EUR/USD has gone from 1.25-1.30 median range to higher into the 1.30's.
For every 100 million euro's in USD costs, that would have resulted in about 5 million euro's in savings.
If half of their costs are USD based, then their actual performance has not improved by much.
-27 million loss
-15 million state aid
-25 million exchange rate improvement

So yes, there is a 25 million improvement and staff salaries already account for 15 million of that.
10 millions of nickle and diming gave them the rest of the edge. You could call it an improvement, but at 1% of total revenues I call it seasonal fluctuations. The next year it could be -10 millions.

For 2014, SN has some tailwind thanks to favorable EUR/USD rates as well, but the increased competition doesn't bode well for their results. Also, if the 15 million state aid has to be taken out of their balance sheet as it's still not approved, SN will have to take it as a loss in 2014, inflating the negative result.

Also,you're looking at the wrong balance sheet for shareholder's equity.
You should be looking at the consolidated B/S at holding level, because SN won't survive if the holding doesn't survive.

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sn26567
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Re: Brussels airlines future and financial perspective

Post by sn26567 »

CAPA today issued an interesting analysis of Brussels Airlines' finances in 2013 and a forecast of what is likely to happen after the arrival of Ryanair and Vueling in its Brussels hub.

http://centreforaviation.com/analysis/b ... ase-181661

Among the main considerations:
  • In 2013, passenger numbers increased by 2% to 5.9 million, finally taking them back to their pre-financial crisis level of 2007.
  • The load factor still looked low by comparison with the industry average
  • This year, the passenger growth rate has accelerated. In the first six months of 2014, Brussels Airlines recorded a 10% increase in passenger numbers to 3.1 million. This growth has mainly been driven by long-haul.
  • Load factor gained 1.6 ppts to 69%
  • SN is losing market share in Brussels as Vueling and Ryanair enter its hub: SN's share of seats at the airport has fallen to 29% for the week of 4-Aug-2014, from 36% in summer 2013
  • Ryanair now has 6% and Vueling 4% of seats at Brussels Airport.
  • SN's share is by some distance the lowest of any 'national' carrier in Western Europe at its home hub.
  • If Brussels South Charleroi Airport is also taken into account, SN's share of seats in the Brussels airport system is only 23%, the same as Ryanair for the sum of the two airports in the Brussels system as a whole.
  • LCCs now account for 39% of all international seats in Belgium.
  • Out of SN's 51 European destinations, it now has LCC competitors on 38
  • Brussels Airlines’ transition to a hybrid carrier is compatible with parent Deutsche Lufthansa AG’s plans to amalgamate its European point-to-point services under the ‘WINGS’ brand, according to CCO Lars Redeligx
  • the average age of the fleet is 13.7 years, older than the global and European averages and considerably older than the fleets of most European LCCs.
  • Its widebody fleet of eight A330s has an average age of 18.5 years.
  • Losses narrowed in 2013 as CASK fell faster than RASK
  • SN's check&go product, with fares starting at EUR69, is clearly aimed at competing with LCCs, but it is unlikely to be profitable at that fare. Ryanair and Wizz Air have average costs per passenger of less than EUR60, while cost per passenger for Vueling and easyJet is in the mid EUR70s and SN's short-haul cost per passenger must surely be considerably higher than EUR69.
  • Africa provides SN with an interesting niche, but this looks vulnerable to rapidly growing competitors and those that also offer more global destinations to African passengers.
  • Brussels Airlines' less certain future: improvements but not yet profits.
André
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RoMax
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Re: Brussels airlines future and financial perspective

Post by RoMax »

sn26567 wrote: [*]SN is losing market share in Brussels as Vueling and Ryanair enter its hub: SN's share of seats at the airport has fallen to 29% for the week of 4-Aug-2014, from 36% in summer 2013
I wonder if SN's charter capacity is included in SN's numbers? Not that it makes that much of a difference probably, but at least a bit (certainly in August).

But indeed, despite SN's quite impressive pax growth numbers, they are not able to keep up with those of BRU, which is normal with two new LCC bases, one of which with 10 destinations. If SN would grow at the same rate, that would be extremely unsustainable growth.
sn26567 wrote: [*]SN's check&go product, with fares starting at EUR69, is clearly aimed at competing with LCCs, but it is unlikely to be profitable at that fare. Ryanair and Wizz Air have average costs per passenger of less than EUR60, while cost per passenger for Vueling and easyJet is in the mid EUR70s and SN's short-haul cost per passenger must surely be considerably higher than EUR69.
And that of course brings back the question of how many of these base price tickets will actually be available... I don't think it's new to realise SN will not earn a penny with these cheapest tickets. It's the question how much it will impact their loadfactor (it's still better to sell a seat at a (calculated) loss than to have it empty, but of course there's a limit) and how they will balance the different fare types.

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Re: Brussels airlines future and financial perspective

Post by airazurxtror »

sn26567 wrote: [*]SN's check&go product, with fares starting at EUR69, is clearly aimed at competing with LCCs, but it is unlikely to be profitable at that fare. Ryanair and Wizz Air have average costs per passenger of less than EUR60, while cost per passenger for Vueling and easyJet is in the mid EUR70s and SN's short-haul cost per passenger must surely be considerably higher than EUR69.
What exactly is the "cost per passenger" ?
What is taken into account to calculate it ?
IF IT AIN'T BOEING, I'M NOT GOING.

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sn26567
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Re: Brussels airlines future and financial perspective

Post by sn26567 »

airazurxtror wrote:What exactly is the "cost per passenger" ?
What is taken into account to calculate it ?
The answer seems obvious to me: leasing of aeroplane + fuel + personnel costs (on board and pro-rata of ground staff) + taxes + food/drinks/amenities (if any, according to class of travel) + anything I may have forgotten, divided by number of passengers.
André
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airazurxtror
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Re: Brussels airlines future and financial perspective

Post by airazurxtror »

Thank you; as most of the costs are fixed (leasing, fuel, personnel), the cost per passengers depends heavily on the load factor. Which explains that a pax even at a lower fare is better than no pax.
But, at bottom, that doesn't concern me, it's for the airlines to manage.
What is more important is how to get these promised SN 69 euros fares, said to be announced mid-August, ie in a few days !
(in the meantime, Brussels Airlines imperturbably publishes "promotional" fares at 99 euros and higher(mostly) - I presume they don't sell a lot of them for the moment ...)
IF IT AIN'T BOEING, I'M NOT GOING.

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