This just in from OUR AOA:
Revenue – the financial tsunami
In the Friday Telex of 17 Oct, it is reported that revenue fell 10.8% below budget for the first full week in October. For the sake of the exercise, let’s assume that revenue remains 10.8% behind budget for the remainder of the year. According to a previous Friday Telex, we were 3.6% ahead of the budget for the first 9 months of the year. So a shortfall from budget of 10.8% for the last 3months of the year, and not our ‘peak’ revenue months at that, would result in us being about 0.9% ahead of budget at year end. Hardly a figure to crow about, but not so bad if you consider that revenue for 2007, our record profit year, was only 2.0% ahead of budget!
Profit = Revenue – Costs!
Based on the latest figures, revenue will come in slightly above budgeted level for the year. Costs, on the other hand have fallen dramatically over the last few weeks. Crude oil prices are less than 50% of their peak values in summer. But more dramatic has been the fall in jet fuel prices. The margin for jet fuel above crude oil prices has decreased from around $40/barrel to just over $20/barrel. Additionally, as reported last week, fuel surcharges have fallen by up to $10,000US per ULR pattern, but fuel costs have fallen by over $70,000US per ULR pattern. So the surcharge is absorbing an ever increasing percentage of fuel costs.
At the operating level, the Company basically broke even in the first half of 2008 – that is revenue and costs were equal. Fuel recently peaked at about 50% of our costs – so the recent fall in fuel prices, over 40%, implies that our operating costs will fall by 20%. As this will only affect the last 3 months of the year it will reduce total annual costs by around 5%. On top of this it must be remembered that whilst Company communiqués incessantly declared that fuel surcharges rose too slowly and did not fully cover the fuel increases, the same slow CAD approval process will result in fuel surcharges absorbing an ever increasing percentage of total fuel costs as fuel prices fall!
So whilst the recent revenue drop of around 10% is cause for alarm, the more than 20% drop in operating costs, for the last quarter, should more than counter that revenue loss.
So there you go.....................
Expect a FULL 13th month I'd say.
