STILL FLYING THROUGH FINANCIAL STORMS
THE GLOBAL AVIATION INDUSTRY is expected to make a loss of more than US$5bn this year (assuming an average oil price of $113/barrel for 2008) and JSE-listed Comair is having a tough time of it. When the airline reported its annual results to end-June 2008, the group’s hefty R1bn fuel bill took a toll on earnings. Operating profit declined 34% to R112m and its bottom line dropped 43,4% to R61,8m.
But it could have been worse if Comair hadn’t replaced nine older aircraft with newer-generation more fuel-efficient jets, which saved the group around R55m in its 2008 financial year. To add to the airline’s woes a one-way domestic flight from Johannesburg to Cape Town costs Comair a hefty R50 000. So any initiatives to reduce weight – and consequently the fuel bill – are applauded.
• • If the oil price stabilises and holds below $100/barrel, earnings may improve. With talk that supply from oil reserves is expected to run out in as little as 50 years, research into alternative fuels provides better prospects on the sustainability of the airline industry – but those come at a hefty price. Comair’s new fleet reduces fuel consumption. Comair has its own drive to reduce its fuel bill by cutting the weight of equipment (such as food trolleys) it carries on board flights.
Market speculation and volatility may see major moves to the upside in the oil price, inflating Comair’s fuel bill and dampening earnings. Traders might well avoid aviation stocks in a context of market volatility and spiralling oil prices as other JSE shares provide better returns.