Icelandair Group hf.: Strong bookings drive positive cashflow from operations
Summary
In Q2 Icelandair Group started to ramp up its operations to meet increased demand. The quarter showed strong booking inflow for travel in the second half of the year resulting in net cash from operating activities of USD 65.0 million compared to negative USD 96.8 million in the same quarter last year. The improvement year-on-year was USD 161.8 million. At the end of the quarter total liquidity amounted to USD 362.5 million, thereof cash and marketable securities amounted to USD 190.5 million, increasing by 80.6 million during the quarter.
The Q2 operational results were impacted by the ramp-up of the international route network and COVID-19. During the quarter, 15 destinations were re-introduced to the flight schedule and weekly flights increased from 28 in April to 160 in June. Realizing a positive profit contribution from flights during ramp-up is generally challenging and this year it was further impacted by the pandemic. The passenger load factor increased steadily throughout the quarter despite the extensive growth in the flight schedule. In addition, the Company invested substantially in operating expenses in preparation for an ambitious flight schedule for the second half of the year to meet the increase in demand. These costs included the reintroduction of aircraft to the fleet after months of storage, the implementation of three new MAX aircraft to the fleet, training of employees returning to duty and increased advertising spend, which in return will generate earnings in later quarters. EBIT for the quarter was negative of 62.2 million USD, an improvement of 35.6 million USD between years. Net loss amounted to USD 54.9 million compared to USD 90.8 million in the previous year.
Cargo revenues were strong in the quarter, up by 35% and freight volumes remain on pre-COVID levels. Outlook for the cargo operations continues to be strong.
Icelandair’s capacity in July will be 43% of the 2019 level compared to 15% in Q2 and the load factor is expected to be around 70% compared to 47% in Q2. Based on the current outlook capacity will increase further in August and load factor will improve from July. However, the final outcome is dependent on how the development of the pandemic and changes in travel restrictions will impact demand.
Bogi Nils Bogason, President and CEO
"The ramp-up has started – we are expanding our operations and increasing the number of flights every week. The second quarter results were still heavily impacted by the COVID-19 pandemic and costs incurred in the quarter associated with ramp-up of the network, however, strong booking flow in June for the second half of the year is the main driver for positive cashflow from operations of over USD 65 million. This is a remarkable turnaround from the previous year. We are grateful and honored for the trust that our customers in all our markets show our Company and our brand.
Since the pandemic hit, we have ensured to safeguard our infrastructure and the flexibility to be able to respond quickly to rapid changes in our markets. With this focus, we have been able to successfully manage our route network, increasing our international network capacity five-fold in the second quarter and transporting over four times more passengers than in Q2 last year. Our domestic operation has been strong in the quarter with our capacity reaching 85% of Q2 2019 levels.
As the airline that brings the majority of tourists to Iceland and as an important employer in the country, a successful ramp-up of our operations is vital for Icelandic tourism, the local economy and society at large. We expect to transport over 400 thousand tourists to Iceland this year that we estimate will generate around USD 646 million in export revenue. We are delighted to welcome back many of our great colleagues following extensive recruitment alongside our ramp-up. We expect to have almost 2,100 full time employees on average in 2021 and estimate that the direct contribution of Icelandair Group’s operations to the Icelandic economy in the form of salary, salary-related expenses and pension contributions will amount to around USD 210 million. The indirect contribution is significantly greater, driving economic benefits not only to the local tourism industry but the Icelandic economy as a whole.
We continue to see strong interest in Iceland as a tourist destination and with a significantly improved booking status in our international route network, our flight schedule is ambitious in the second half of the year. However, we continue to face some uncertainty going forward and will use the flexibility of our route network to adjust to the situation as needed at any given time. We are optimistic that the US will open for European travelers in the third quarter. The demand for cargo transport remains strong and is also increasing for charter flights in the second half of the year, supporting our revenue generation and sustainable future growth of the Company.
I would like to use this opportunity to thank our employees and partners for their dedication, flexibility and teamwork that has been the key to the successful restart of our network in such a short time in very challenging circumstances."