Aeroflot announces Q2 and 6M 2018 RAS financial results

posted by AJOT | Aug 06 2018 at 11:51 AM | Air Cargo

Moscow - PJSC Aeroflot (“the Company”, Moscow Exchange ticker: AFLT) today publishes its financial results for the second quarter and first six months of 2018 in accordance with Russian Accounting Standards (RAS). RAS results are presented on a non-consolidated basis.

Key results in accordance with RAS

million RUB	Q2 2017	Q2 2018	6M 2017	6M 2018
Revenue	110,408	124,963	198,187	219,157
Cost of sales	(98,133)	(122,598)	(187,941)	(228,387)
Gross income / (loss)	12,275	2,365	10,246	(9,230)
Net income / (loss)	7,010	1,568	2,306	(7,182)

Comments on Q2 and 6M 2018 RAS financial results

In the first half of 2018 Aeroflot continued to actively develop its route network and grow traffic volumes. The number of flights completed increased by 10.1%, which together with active revenue management led to substantial growth of revenue.
Revenue for 6M 2018 was RUB 219,157 million, an increase of 10.6% year-on-year. This was driven by growth of Aeroflot’s operational indicators, as well as changes to key currency rates:
- RPKs increased by 5.0% to 44.9 billion RPKs. Passenger numbers increased by 6.4% to 16.2 million passengers;
- Revenue growth for 6M 2018 was boosted by changes in key currency rates (the euro appreciated against the ruble by 14.5% year-on-year, and the US dollar by 2.6%);
- Revenue growth accelerated noticeably in Q2 (+13.2% year-on-year; Q1 2018 +7.3%).
Cost of sales in 6M 2018 was RUB 228,387 million, up 21.5% year-on-year. This was due to the growth of the Company and higher traffic volumes, as well as to the impact of external factors including a significant increase in the cost of jet fuel as well as higher costs for air navigation services, airport charges and ground service costs on the back of an increase in service charges at a number of airports.
- The biggest impact on costs in 6M 2018 was growth in the largest operating cost line, aviation fuel, of RUB 15,845 million (+39.1% year-on-year), in part due to an increase of 29.4% in the cost of kerosene in rubles year-on-year in the context of a significant increase in the cost of Brent crude (the average cost per barrel in dollars in 6M 2018 increased by 35.0% year-on-year, with most of the increase in the cost of oil happening in Q2 2018). Management consistently advocates for a stabilisation in jet fuel prices during negotiations with suppliers.
- Cost growth was also driven by an increase of 18.4% in costs for air navigation services, airport charges and ground service costs in the context of an increase in the number of flights completed and higher service costs at a number of airports in Russia. Above-inflation increases in airport taxes substantially restrict the potential for Russian companies to grow flight volumes as part of a strategy of expanding regional flights. Aeroflot is prepared to take decisive steps to normalise this cost item.
- Leasing and aircraft and engine maintenance costs increased due to the expansion of Aeroflot airline’s fleet by 42 aircraft over the last 12 months.
- Higher staff costs were driven by an increase in salaries and incentives to flight crew designed to improve the attractiveness of the Company’s employment terms, as well as an increase in the number of flight personnel on the back of Company’s operations expansion.
A number of optimisation measures undertaken by management to mitigate external pressures enabled the Company to decrease sales costs in 6M 2018 by 2.4% year-on-year; a significant reduction was achieved in Q2 2018.
Income from other activities increased by RUB 7,230 million (+53.2%) due to income received from sales of aircraft (RUB 3,095 million) and dividends from subsidiaries (RUB 1,745 million), as well as a reduction in interest payments (total interest payments in 6M 2017 amounted to RUB 746 million, there were no interest payments in 2018).
As a result of the factors listed above, the net loss for 6M 2018 was RUB 7,182 million. Despite pressure from external factors, including substantial growth in the cost of fuel and higher airport service tariffs, management was able to keep control of costs, resulting in a net profit for Q2 of RUB 1,568 million. Excluding the effect of external factors, adjusted net profit for 6M 2018 was at the level of 2017.