PJSC Aeroflot (“the Company”, Moscow Exchange ticker: AFLT) today announces its financial results for the first quarter of 2019 in accordance with Russian Accounting Standards (RAS). RAS results are presented on a non-consolidated basis.
Comments on Q1 2019 RAS financial results
In the first quarter of 2019, growth at the Company continued to be accompanied by strict cost control. Market factors, including changes in FX rates and fuel prices, significantly affected financial results year-on-year.
< > for Q1 2019 was RUB 114,026 million, up 21.1% year-on-year. In Q1 2019, revenue growth continued to accelerate (13.0% in 2018, 16.4% in Q4 2018). Revenue was affected by:
RPKs increased by 11.0% to 23.3 billion RPKs. Passenger traffic increased by 14.3% to 8.5 million following an expansion of the route network and an increase in flight frequencies to popular destinations;
FX-denominated revenues rose due to an increase in FX rates: the euro appreciated against the ruble by 7.1% year-on-year;
positive trend in yields (+5.6% year-on-year in Q1 2019) and RASK (+4.6%) for the parent company was due to an increase in capacity (based on existing demand) and currency effects;
Cost of sales in Q1 2019 was RUB 133,039 million, up 25.8% year-on-year. The cost of sales was affected by macroeconomic factors as well as by objective factors associated with the development of the Company and increase in capacity.
In Q1 2019, the main increase in costs was driven by rising jet fuel expenses. Fuel expenses rose to RUB 6,199 million (up 24.5% year-on-year), due to, among other factors, a 10.4% year-on-year increase in ruble prices for fuel. Increase in jet fuel prices despite a 5.4% decrease in the Brent oil price was driven by 16.0% depreciation of the ruble against the dollar (comparison of year-on-year trends). The growth rate of fuel prices in Q1 2019 may seem moderate compared to unprecedentedly high growth rates in 2018. However, for the aviation industry, which is competitive on the one hand and where financial performance is very sensitive to minor fluctuations in macroeconomic indicators on the other hand, the continued rise in fuel prices materially influences the results.
Leasing and aircraft and engine maintenance costs increased due to the expansion of Aeroflot airline’s fleet in operating lease by 21 aircraft over the last 12 months.
Cost growth was also driven by an increase in ground service costs, costs for air navigation services and airport charges following an increase in traffic and tariffs charged by Russian airports.
The Company continued to implement optimization measures and adhere to strict cost controls. This allowed the Company to mitigate the growth rate of selling costs and administrative costs, which grew by 16.3% and 18.2%, respectively – a significantly lower growth rate than that of revenue and total cost.
Net result from other activities for Q1 2019 reduced insignificantly (by 8.8%) following a decrease in other revenues and costs associated with planned decommissioning of aircraft (accounted for in the previous reporting period).
Winter season is the most challenging season for the industry, as airlines have to cover fixed costs while demand for their services is significantly lower. The net loss for the reporting period amounts to RUB 16,850 million and is explained by the low season, fuel price pressures and an increasing impact of the FX factor. Aeroflot airline and Aeroflot Group plan to continue active revenue management and strict cost control throughout the whole 2019.