21. 9. 2005 - CSA Responds to Negative Developments in the Airline Industry
Prague, September 21, 2005
In its meeting today, the board of trustees of Czech Airlines discussed the company's response to the overall negative developments facing the global airline industry, primarily resulting from the continuing high and rising fuel prices.
With the recent losses related both to the latest terrorism activities and the ongoing military conflicts taking place throughout the world (Sept. 11, Iraq, Egypt, London) as well as the natural disasters in Southeast Asia and in the US, the current oil prices and the resultant prices for jet fuel pose yet another negative factor. Together, these have lead to the prediction that the industry will once again incur losses of roughly USD 7.4 billion. This is the level of losses predicted by the IATA, with an average price for oil of USD 57 per barrel in 2005. Each extra dollar added to the price of oil is expected to create an additional loss of roughly USD 1 billion.
These developments reaffirm the warning raised by the IATA Director General, G. Bisignani, who referred to the current oil prices as the "fifth horse of the apocalypse", which are once again posing a threat to the profitability of the airline industry.
CSA's strategies for responding to these dramatic developments within the industry, which have caused the airline's costs to soar in 2005 by more than CZK 1 billion just for the cost of jet fuel, are focused around its attempt to accelerate the company's transformation. CSA is doing this by speeding up its strategic reorganization projects. These combine increased earnings with aggressive cost cutting.
The expediting of the airline's conversion to more modern electronic forms of doing business and pursuing sales is focused not only on its traditional clientele but, in particular, on corporate clients and small and medium-sized businesses. These efforts include the radical expansion of its direct sales options – especially over the internet and are supported by changes in revenues and management and investments in new IT technologies. Altogether, these represent the set of key measures that make up the CSA business and sales transformation project.
"The board of trustees looks extremely positively on the fact that the airline has been able to meet the critical milestones of its strategic projects. These projects are expected to bring in hundreds of millions of crowns – in particular through the introduction of the latest generation of business and sales tools, starting September 1, 2005," says Eduard Janota, Chairman of the CSA Board of Trustees. He also added, "The only way to successfully face the increasing pressures of rising fuel costs and competition is to aggressively cut the airline's own costs and to introduce effective, modern technological tools at the same time."
The restructuring of its foreign branches, of its businesses in the Czech Republic and Slovakia and the operations of its long-distance fleet are among the other things that are seen by CSA as ways to add an additional boost to its profitability.
The company's cost-cutting projects focus on all areas of CSA's costs, including both its external suppliers as well as its own internal operations. CSA is in the process of actively reviewing almost all of its contracts, including those with major partners such as the Prague Airport, Air Traffic Control, fuel suppliers and distribution agencies. CSA is cutting its own internal costs at the same time. CSA plans to reduce its current number of suppliers from 3,500 to below 2,000.
"The results from the existing projects has not only allowed us to work with the certainty of being able to surpass the projected earnings goals for 2006, as they were outlined in CSA's 2005-1015 Strategic Plan, but also, these results are having a positive impact on the current year of 2005", said CSA's Chairman of the Board and President, Jaroslav Tvrdík. He added, "If we are able to fully implement these projects, the results will allow us to eliminate the impact of the current oil price increases on our next year's financial results and they will restore CSA's profitability."
The company's investment outlays were also the subject of a separate analysis, which showed that the airline will be able to save over CZK 300 million more than originally forecast in its approved financial plan – an amount representing more than 20% of CSA's total investment outlays for 2005.
CSA plans to continue with additional development projects, particularly those aimed at the airline's attempt to take advantage of the growing market for charter flights, commercial activities in the area of aviation equipment servicing and maintenance and the training of crews, where the company wants to maximize the potential represented by its highly successful solicitation for medium-distance aircraft. The exceeding of the projected profitability from these business activities will also help to effectively eliminate the negative external pressures experienced by the airline during 2005.
After the project aimed at the replacement of the existing turboprop aircraft, the airline's transition into modern types of aircraft in its medium-distance fleet is the next project leading to a major modernization and therefore greater cost-efficiencies for CSA's operation.