STILL FLY­ING THROUGH FI­NAN­CIAL STORMS

Finweek English Edition - - Companies & Markets - NICOLE REGO

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.

OP­POR­TU­NI­TIES

• • 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.

RISKS

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.

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