Last week, Aerolineas Argentinas and its domestic sister company, Austral, presented its 2018 results with some worrying numbers but also with a ray of light regarding its operations for 2019.
Together, both companies recorded a loss of $489 million USD. Compared to 2017, revenues remained practically constant, accompanying inflation, but costs rose by 18 percent. At the start of 2019, the operational numbers of the company registered a steep recovery.
In 2017, the company showed signs of high growth with a high purchasing power of the peso and low fuel prices. However, due to operational inefficiencies, Aerolineas Argentinas suffered a loss of $141 million USD. The airline now faces a challenge to continue working on a productive and efficiency agenda in order to become competitive again.
Results in the first quarter of 2018 remained on the same line as 2017, with the company growing at a rate of more than 10 percent per year. But at the beginning of the second quarter, the rise in the price of fuel and the exchange rate began to have an impact on the financial results. The carrier managed to grow by 2 percent in the number of domestic passengers, although there was a 9 percent drop in international flights. Nevertheless, the company was able to sustain its growth rates at the rate of inflation. Therefore revenues remained almost constant with a variation of three percent.
Operating costs for 2018 saw a rise of 18 percent, strongly impacted by the variations in oil prices and the U.S. dollar and Argentinean peso exchange rate. However, fuel hit the carrier the hardest. At the international level, the rise in the crude oil price by 29 percent combined with the profound peso devaluation, represented a 60 percent increase in the operational cost of jet fuel. The item represented a rise of $163 million USD in costs year-over-year.
Another issue that had a strong impact on the company’s results during 2018 was the debt taken during the past decade for the purchase of new Embraer, Boeing and Airbus aircraft, which today totals $499 million USD. That debt has been signed in dollars and because of the rise in the exchange rate, represents an additional loss of $130 million USD for the purchase of 24 Embraer 190 aircraft and $88 million USD for the purchase of additional Boeing and Airbus aircraft.
Leasing and maintenance costs are also paid in US dollars. The exchange rate represented a rise $56 million USD for these expenses in 2018.
To reduce operational costs, the company worked on different fronts. The renegotiation of contracts for its reservation system, crew hotels, and catering added savings of $111.3 million USD. The greater utilization rate of the aircraft, which exceeded the barrier of 10 hours per day, well above the average of previous years, also generated an optimization of resources. The savings program that Aerolineas is developing has already generated a reduction of operational costs by 23 percent since 2015, equivalent to $500 million USD annually.
The results of the carrier in 2018 are not isolated and the multiple carriers in the region suffered as well. According to the International Air Transport Association (IATA), the gross margin of each ticket sold in Latin America during 2018 was $1.41 USD. At the beginning of the year, the IATA had estimated that this margin would be $2.95 USD. In North America, this margin was $15.08 USD and in Europe, $6.65 USD.
Company sources remain confident that the operational balance achieved during this difficult time, is the foundation of a necessary and frantically pursued sustainability.
Technology and systems expert, occasional spotter, not-so-dynamic midfielder, blogger, husband, father of three cats; he believes that Latin America's aviation industry past, present, and future offer a lot of stories to be told.
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