Thai Air's Profit Falls 48% On Fuel, Currency Loss

[LaoPo]

Thai Air's Profit Falls 48% on Fuel, Currency Loss

By Anuchit Nguyen

May 14 (Bloomberg) -- Thai Airways International Pcl, Southeast Asia's second-biggest carrier, said first-quarter profit fell 48 percent on higher fuel costs and currency losses.

Net income dropped to 2.22 billion baht ($68 million), or 1.3 baht a share, from 4.23 billion baht, or 2.49 baht, a year earlier, the carrier said in a Bangkok stock exchange statement today. That was less than the 2.4 billion baht median estimate in a Bloomberg News survey of four analysts. Sales at the Bangkok-based carrier rose 11 percent to 54.9 billion baht.

Profit dropped as the cost of jet fuel almost doubled in the past year, eroding gains from the region's rising travel demand. The airline also suffered from the baht weakening against the euro, as about half of its debt is denominated in the European currency, according to Phillip Securities (Thailand) Pcl.

``Rising oil prices are the biggest concern,'' said Kongsawat Mongkolporn-udom, an analyst at United Securities Pcl. ``Increases in surcharges can only cover part of the higher fuel costs.'' He rates the carrier ``hold.''

The government-controlled airline raised its levies on international routes as much as 35 percent on April 28. Singapore Airlines Ltd., Southeast Asia's biggest carrier, raised its surcharges as much as $20 a flight from May 12.

Thai Air's fuel bill, its biggest expense, rose 40 percent to 19.6 billion baht in the first quarter, as prices rose and it added more flights. The price of jet fuel rose to a record $160.25 a barrel in Singapore on May 12.

Passenger Traffic

Thai Air's profit from flight operations dropped to 4.75 billion baht from 6.18 billion baht a year earlier. Passenger numbers in the first three months of the year rose 8.1 percent to 5.38 million, according to data on the carrier's Web site.

Passenger load factor, or the proportion of seats filled with paying customers, in the period rose to 81.6 percent from 80.4 percent a year earlier.

The carrier dropped 1 percent to 26 baht at the 12:30 p.m. lunch break in Bangkok. The shares have fallen 34 percent this year compared with a 2 percent decline in the SET Index.

The airline booked a currency loss of 664 million baht in the first quarter compared with a gain of 1.47 billion baht a year earlier. Thai Air is sensitive to exchange rate fluctuations as most of its sales and 130 billion baht of debt are in dollars, euros and yen.

The baht weakened about 14 percent against the euro in the first quarter, according to Bloomberg data.

Thai Air in February changed its fiscal year to a calendar year from the previous October-September period.

---Bloomberg

LaoPo

[soundman]

I dont know how they can cry poor on the cost of fuel increases - its all passed onto the passengers in the way of surcharges.

In fact, I recently purchased tickets to Krabi. 1800 Baht return with an extra surcharge of over 2000B for fuel and taxes.

[tijnebijn]

14% against the euro ? I don't remember the Euro being at a level lower then 45 a long time .

And its reaching 50 again , but 14% , I do not think so ....

[Prakanong]

And Singapore Air fell something like 4% but still made a healthy profit

The difference between a well run transparent company and what Thai's can do as managers!

[rchapstick]

I saw the AirAsia CEO interviewed a while back, and he said they did absolutely no hedging on fuel costs and currency. Looks like that decision bit 'em in the arse this past year.

[Misty]

Unless THAI has changed its accounting methods, the reported profit figures probably don't accurately represent what's happening--the 48% fall likely overstates the trend in operating cash flow.

For example (at least in the past) THAI maintained a natural hedge against foreign currency movements--i.e., the revenue mix of its currency was linked to its debt service requirements. My guess is this is probably still the case. However, the way THAI accounts for currency movements in P&L figures may not accurately reflect this hedge. For example, THAI probably still marks its debt to market value, adjusting for foreign currency movements, and takes the adjustment straight through the P&L each quarter. This makes for large reported gains or losses from quarter to quarter. Excluding any actual debt repayments that occurred in the quarter, the gain or loss is not realized.

Interestingly, THAI did not and may still not adjust the value of its assets in a similar manner. So aircraft that are purchased in US$ are translated once to baht value at the time of purchase, and then depreciated on a straight line basis. No gain or loss is taken through the P&L unless the aircraft is sold.

This accounting system resulted in THAI reporting negative equity after the baht floated in 1997, even though the company's operating cash flow was strong and the company was not in financial difficulty.

It may also be a bit tricky to compare THAI P&L numbers to that of Singapore Air, as the currency accounting situation is likely different. Also, I believe Singapore Air leases most of its aircraft, and so Singapore Air's balance sheet will not carry the same amount of debt (and assets) that THAI does relative to its operating cashflow. Therefore, even if Singapore Air does account for its foreign currency debt in way mentioned above, the quarterly gains or losses taken through the P&L would be quite a bit smaller (smaller debt, lower gain or loss).

Thai Air's Profit Falls 48% on Fuel, Currency Loss

[The airline booked a currency loss of 664 million baht in the first quarter compared with a gain of 1.47 billion baht a year earlier. Thai Air is sensitive to exchange rate fluctuations as most of its sales and 130 billion baht of debt are in dollars, euros and yen.

The baht weakened about 14 percent against the euro in the first quarter, according to Bloomberg data.

Thai Air in February changed its fiscal year to a calendar year from the previous October-September period.

---Bloomberg

LaoPo

Edited May 16, 2008 by Misty

[LaoPo]

In sharp contrast with the 48% drop in Thai Airways profits....:

British Airways profits soar 45%

http://news.bbc.co.uk/2/hi/business/7404085.stm

LaoPo