After a staggering CY10 for Pakistan International Airline in terms of turnover with revenues growing by 14 percent and the primary business segments showing remarkable growth, the much awaited annual results for CY11 announced on April 30th CY12 reflected the horrifying performance round the year. Sale revenues inched up by eight percent during CY11 versus CY10 primarily due the passenger business segment representing roughly 85-90 percent of the total revenues. However, these receipts were once again were not enough to absorb the cost shock. Cost of service shot up and this was mainly on account of a 41 percent jump in aircraft fuel expenses during CY11. Aircraft fuel constitutes more than 50 percent of the total cost of service, and escalating oil prices during the year, especially the latter half dented the gross profit where gross margins fell from 13.9 percent in CY10 to 1.4 percent in CY11. Hence volatility in crude oil prices directly impacts the airlines operating costs. The deterioration of rupee versus the greenback wreaked havoc on the profitability of the company during CY11, unlike CY10 which somewhat stable exchange rate. Every year, PIA suffers heavy losses on account of exchange rate translation. CY11 was no different, as the net exchange loss doubled from Rs2.09 billion in CY10 to Rs4.22 billion in CY11. As a result operating margins tumbled from the meagre 0.67 percent in CY10 to -15.38 percent in CY11. Other operating income that increased two-fold during CY10 on account of higher derivative income and reversal of the provision for CAA claims in CY10 and has remained a source of hope during times of disarray did no good to the profits at the year end. Hence the profitability during CY11 was further axed by a dip in other income by 76 percent. The net profit during CY11, consolidated and unconsolidated both, plunged by 29 percent with unconsolidated net margins deteriorating further into negative. As expected, CY12 did not start off well for PIA as the results of 1QCY12 depict an even ghastly picture. Where the revenues remained flat for the quarter versus 1QCY11, the costs surged to new heights. Volatility in the fuel market and the inefficiencies at the public sector organisation weighed heavily on profitability. With some respite in the other income, loss after tax for 1QCY12 stood at Rs7.8 billion, with profitability plummeting further by 84 percent. PIACs financial performance is extremely vulnerable to three major risks. One is the fuel price risk due to volatility in crude oil prices. The companys gross margins and operating margins remain extremely sensitive to future fuel price movements. Second is the currency risk especially when the rupee is expected to cede its ground further. Thirdly, the company is exposed to interest-rate risk and given the situation in the eurozone, the financing linked to Libor are heavily strained. Not to forget the operational inefficiencies, nepotism and unwarranted appointments debilitating the operating performance.
========================================================================== Pakistan International Airlines ========================================================================== (Rs mn) CY11 CY10 chg 1QCY12 1QCY11 chg ========================================================================== Revenue (net) 116,551 107,532 8% 26,445 26,182 1% Cost of services Aircraft fuel 62,965 44,707 41% 15,146 13,107 16% Gross Profit 1,584 14,972 -89% (1,324) 803 Exchange loss - net 4,219 2,092 102% (737) 730 Other operating income 546 2,270 -76% 389 45 763% Operating profit/(loss) (17,927) 720 (4,990) (1,590) 214% Loss before taxation (28,026) (8,580) 227% (7,680) (3,983) 93% Loss for the year (26,767) (20,785) 29% (7,812) (4,244) 84% Gross margin 1.36% 13.92% -5.01% 3.07% Operating margin -15.38% 0.67% -18.87% -6.07% Pre-tax margin -24.05% -7.98% -29.04% -15.21% Net margin -22.97% -19.33% -29.54% -16.21% ==========================================================================
Source: KSE Notice
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