The national flag carrier is drenched in red, as expected. The financial performance of Pakistan International Airlines for the half year ended June 30, 2012 is not pleasant at all. The airline has resided in the red zone for seven years consecutively since CY05, and from the looks of it, CY12 will be no different. To start off, the top line of PIAC shrunk during 1HCY12 versus similar period last year, and the revenues from the domestic and international operations took a hit, dropping by three percent year on year. Though the receipts during 1QCY12 remained flat year on year, net sales plugged particularly during the second quarter, owing to the narrowing down of the routes and destinations. A bugbear which is familiar to the gross margins of air transport industry is the rising fuel cost. The gross profits dipped into red zone during 1HCY12, clocking in at Rs926 million compared profit of Rs1,173 million in 1HCY11. Contrary to that, the gross profits turned green during the second quarter as opposed to 1QCY12, primarily on account of no QoQ increase in the aircraft fuel. Congruent with a decline in the international crude oil prices, fuel expense fell by eight percent YoY during 2QCY12. Every year, PIA suffers heavy losses on account of exchange rate translation. A major damper to the profitability of the airline this time too was the weakening rupee, as exchange losses skyrocketed flamboyantly during 1HCY12. Added to that, the buffer from the other income was not strong enough to battle dwindling profitability during 1HCY12. Colossal decline in profitability during the first quarter of CY12 was a caveat for troubles ahead, and the 2QCY12 portrays so, as losses deteriorated by 68 percent during 1HCY12 versus 1HCY11. The airline is prone to the fuel price risk, currency risk, and interest rate risk besides its internal inefficiencies like debilitating operating performance, nepotism and inefficient appointments. However, recently some good news has flown in with regards to the carriers operations. The national flag carrier under new management has been able to post improvement in its Europe operations during the last couple of months, which will undoubtedly bolster its credibility. Though it could be a start, it will take more than the improvement in Europe and Umrah operations to turn the company around. The wounds are deep and the healing requires long-term strategy to reduce debt and stabilise the airlines financial position. Of the latest bail out news, the new management has chalked out a new business plan to steer the airline out of troubles. However, how far and effectively the teetering national carrier flies amid strong headwinds, only time will tell.
=========================================================== Pakistan International Airlines =========================================================== (Rs mn) 1HCY12 1HCY11 chg Revenue (net) 54,211 55,825 -3% Aircraft fuel 30,233 29,557 2% Gross Profit (926) 1,736 Distribution cost 3,184 3,431 -7% Administrative expenses 3,854 3,177 21% Exchange loss 4,350 104 4103% Other operating income 137 77 79% Operating profit/(loss) (12,484) (5,190) 141% Finance costs 5,400 4,934 9% Loss for the year (18,022) (10,737) 68% Gross margin -1.71% 3.11% Operating margin -23.03% -9.30% Net margin -33.24% -19.23% ===========================================================
Source: KSE notice
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