New rivals ground Comair’s profit rise | Infrastructure news

After reporting a strong profit in the first half of its financial year thanks to lower oil prices, the entry of two competitors in the second half had a reversal effect, Comair [JSE:COM] said on Monday.

The company’s results for the financial year ending June 30th 2015, show continued profitability, despite the absence of revenue growth in the domestic passenger market and a challenging financial year.

“Comair reported a very strong profit in the first half of the financial year, supported by an unprecedented collapse in the oil price,” the company explained.

“The second half saw two new competitors enter the market with very aggressive, but more than likely unsustainable pricing. As a result, any savings achieved on the price of fuel were returned to customers by way of significantly reduced ticket prices. This led to a reversal of the revenue growth experienced in the first six months.”

Comair CEO Erik Venter said, despite the new capacity in the market, Comair maintained its passenger volumes, largely due to the strength of the Kulula and British Airways brands and the company’s ongoing attention to service.

Revenue remained consistent at R5.89bn (R5.90bn in 2014), with a 1% saving in operating costs. Profit for the year amounted to R219m – a net reduction of 17%, mainly as a result of two non-cash flow items.

These non-cash flow items which resulted in decreased profits were the additional depreciation of R79m provided on the retiring Boeing 737-300 fleet, and the year-end revaluation of R51m to the dollar-based funding applicable to one Boeing 737-800.

Cash from operations remained at what the company regards as a healthy R646m. Cash of R147m was invested in three previously leased Boeing 737-400 aircraft and two pre-owned Boeing 737-400’s, all for operation in the British Airways fleet.

The newer aircraft will bring improved fuel efficiency and reduced maintenance demands while improving passenger comfort.

Venter said the black economic empowerment transaction concluded by Comair and the Thelo Consortium in 2007 matured in September 2014 and created realised value of R152m for the participants. Comair continued to invest in transformation initiatives, and thereby maintained its level 4 B-BBEE score.

Commenting on the year ahead, Venter said Comair remained concerned about weak economic growth and the consequent impact of overcapacity in the domestic aviation market.

“Fundamentals dictate that a correction in market capacity is very likely. The new visa regulations applicable to South Africans travelling with children, as well as to foreign tourists, have impacted negatively on our cross-border tourist destinations, and we are actively participating in achieving a more favourable dispensation in this regard,” said Venter.

“We are, nevertheless, confident that there is scope for further growth in our profits. Comair is focused on implementing technology solutions to enhance customer satisfaction, operating performance and drive revenue generating opportunities.

“Furthermore, the ongoing upgrades to the fleet will continue to improve efficiency while at the same time enhance the revenue potential per flight.”

Comair’s share price declined 2.99% to R3.25 following the results.-Fin24

Source: News 24 wire

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