Avianca raises earnings guidance on improved 2Q revenue, traffic

Citing significant second-quarter gains in yield, operating income, revenue and traffic, Colombia’s Avianca Holdings raised its full-year EBIT margin guidance to between 7%-9%, up one point from 1Q 2017, the company reported Aug. 15.

“[Our] focus on increasing revenues, cost reduction and … efficiency throughout our organization have enabled the company to capture important benefits over the past three months,” Avianca CEO Hernán Rincón said. “In addition, we saw stable economies in the region after more than two years of economic downturn, as well as a relative stable oil price after [recent] ups and downs.”

Aviana Holdings is the parent of seven Latin American passenger airlines, including Colombian flag carrier Avianca and air-freight carrier Avianca Cargo.

Avianca reported a net profit of $10.6 million for the 2017 second quarter, a reversal of the company’s $23.2 million net loss in 2Q 2016. Operating revenue increased 13% year-over-year (YOY) to $1.1 million, as passenger revenue increased 18.1% over 2Q 2016. Avianca said this was its strongest 2Q revenue since 2014, with the quarter also producing the company’s first year-on-year yield increase in three years (up 3.2% YOY to 8.46 cents).

Avianca’s expenses were up 9.5% to $1 billion during the quarter, primarily driven by a 22% rise in fuel expenses. A 24.4% rise in air traffic expenses was driven by a 9% increase in passengers as well as an accompanying increase in passenger compensation related to unscheduled repairs, delays and overbooking, the company said. Ground operation expenses, driven by the airline’s increased international operations plus a rise in landing fee expenses, were up 16.5% YOY.

The company turned an operating profit of $62.1 million for the quarter, more than doubled from its $25.5 million operating income a year ago, producing a 5.7% operating margin, up 3.1 points YOY.

Passenger traffic was up 14.5% during the quarter to 10.3 billion RPKs, as capacity grew 9% to 12.6 billion ASKs. Load factor for the quarter was 82%, up 3.9 points YOY—Avianca’s highest 2Q load factor in five years—which the company attributed to its international operations and top-performing routes to Europe as well as destinations within South America.

Avianca Holdings chairman Germán Efromovich recently told ATW the airline is opening more routes, including 4X-weekly Bogota-Boston services. A new, still-unidentified route to Europe is expected to be launched before year-end, Efromovich said. Avianca Columbia’s current routes from Bogota include destinations to London Heathrow, Madrid Barajas and Barcelona El Prat, which use Boeing 787-8s. Avianca Brasil recently began service between São Paulo Guarulhos (GRU)-Miami, Florida and GRU-Santiago de Chile, utilizing Airbus A330-200s on the routes.

Avianca reduced its fleet by two aircraft (an A319 and an A300 freighter) during the quarter, ending the period with a consolidated operating fleet of 179 aircraft.

Having determined that the company’s cost control and revenue growth measures are gaining traction, with traffic on the rise despite restraint in capacity deployment, Avianca revised its full-year guidance for 2017. In addition to the 1 point rise in its EBIT margin (to between 7% and 9%), the company rose both its passenger and capacity increase guidance for the year by 0.5 point, to between 4.5%-6.5% for passengers and 7%-9% for capacity. The company kept its load factor expectation for the year flat, between 80%-82%.