Disappointing performance for Air Pacific

Elenoa Baselala
While Air Pacific for the first time surpassed the half a billion mark in income in its 56-year history, it could only manage an after tax group profit of $17,000, a disappointing performance for the airline.

The rising cost of fuel, low arrivals, high fees and bird strikes were given as reasons for the performance. But the military takeover of government in December 2006 was rated as one that had the most damaging effect on the company’s revenue.

Air Pacific's John Campbell estimated that Fiji’s national airline lost of $70 million in revenue because of the takeover and it will remain a “significant current barrier to improved profitability”.

On a consolidated Air Pacific Group basis, incorporating the losses from 100 percent owned Fiji Airlines Limited, (which is trading as Pacific Sun and providing domestic service), and share of losses from the joint controlled entity—Richmond Limited (operating as Sofitel Fiji Resort and Spa—total gross revenue amounted to $2.5 million.

Air Pacific, the holding company, recorded a gross profit of $7.7 million—a significant decrease from the previous financial year sum of $21.5 million.

Revenue for the group was $500.7 million, an increase of $50.4 million from the previous year. It was driven by improved performance on the South Pacific and North American services.

“Overall, despite the disappointing profit result, Air Pacific can look with satisfaction to the results in challenging circumstances in 2006 and 2007.

“The airline performed well operationally, revenue growth was significant, staff remained focused and productive in the face of adversity and customer ratings continue to show a high level of satisfaction with Air Pacific’s products,” Campbell says.

Fuel costs

As highlighted earlier, rising fuel costs remains an issue for Air Pacific.

Now sitting at US$115 a barrel, high fuel cost was a major contributor to the huge slump in profits.

Campbell says total expenses on fuel now sits at FJD$220 million a year.

“The primary deriver for increased expenditure was fuel in that the airline flew only marginally increased hours (3.8 percent) and trips (4.5 percent) yet fuel costs ballooned by $36.5 million versus the previous year,” Campbell says.

“Other cost increases have been largely driven by higher fees and charges from (largely) monopoly service providers including airports, government enroute charges and the government of Fiji’s increased charges for aviation regulatory overview from CAAFI, customs charges and immigration fees imposed without consultation or negotiation.”

The national carrier for Fiji raked up a total of $493.1 million in expenses, an increase of $64 million from the previous year.

The military takeover last year is said to have had the most damaging effect on the company, which was followed with adverse publicity and travel advisories.

This is estimated to have eroded Air Pacific’s revenue by $70 million as arrivals were lower and the airline also had to discount airfares in its bid to attract visitors.

Bird strikes

Adding to these costs is a $14.6 million expense on bird strikes to planes which caused disruptions to flights.
Early this year the airline increased fares to accommodate the rise in fuel prices and also imposed cost cutting measures such as reducing the number of flights and using planes suitable to passenger numbers.

However, a day before the release of its annual report for the financial year ending March this year, Air Pacific announced it was increasing flights for the next two months in anticipation of an increase in air traffic during the festive period.

Campbell says this is an equivalent of 58 B737 flights over the peak travel season from mid-December until the end of January.

The flights included an additional weekly B737 service to Brisbane, three additional weekly B737s to Sydney, two additional weekly B737s to Auckland and an additional flight each to Apia and Los Angeles.

“The inbound tourism market is showing signs of recovery over the peak December and January period,” Campbell said. “Air Pacific has been carefully monitoring demand and adding flights to ensure that adequate seats are available."

The increase of flights is eight percent above the number of flights for the same period in 2005 and 2006.
Australia continues to have the most number of arrivals while the United States has been eyed as an upcoming market.

There was however a drop in arrivals from Japan and New Zealand.

But with payments for the five Dreamliners to begin next year, Air Pacific says it will need to work hard to improve its profit lines.