Avianca Holdings SA reported a net income of $36.1 million USD in the third quarter despite operations being disrupted by a pilot strike that left the airline without more than half of its pilots in Colombia for around two months.
Though the protracted labor and legal dispute led to the cancellation of thousands of flights before ending on November 13, only 10 days of the strike coincided with third quarter. Thus, the effects will likely be seen more in the financial figures for the fourth quarter, and the Bogotá-based carrier was able to report relatively strong figures that are only slightly below the $37.8 million USD in net income reported in the third quarter of 2016.
“The pilot strike will have an adverse effect on our fourth quarter results,” said Hernán Rincón, executive president and CEO of Avianca Holdings SA, last week on an investor conference call.
The company reported $106.6 million USD in operating income this quarter compared to $83.4 million USD in the third quarter of 2016. The carrier said that these results and were primarily driven by a 12.3% increase in total operating revenues compared to 2016.
Increased traffic, strong load factors, and continued yield recovery were the biggest positive factors. Cargo and other revenues also increased 26.2% year-on-year, primarily driven by an increase in transported tons as well as increased revenues from mile redemption and other services.
The increase in operating income was offset, however, by an 8.4% increase in operating expenses.
In a statement, the company said that, during the 10 strike days during the third quarter, the disruption translated to between $2 million USD and $ 2.5 million USD per day in foregone revenues. Variable costs decreased between $1 million USD and $1.5 million USD per day, stated Avianca.
Though the executive admitted that fourth quarter results will be impacted, Rincón said on the call that, “as we position Avianca for long-term success, the pilot strike will not have a material impact…we maintain our full-year EBIT margin guidance of 7%-9%.”
Overall, Avianca transported more than 7.6 million passengers during the third quarter of 2017, a 0.1% year-over-year increase. Despite the strike, traffic figures (measure in “revenue passenger kilometers” or RPKs) continued to increase well above capacity (in “available seat kilometers” or ASKs), resulting in a consolidated load factor of 84.6%, the highest load factor on record since the company’s merger with Taca from El Salvador. In particular, routes to Europe reached an average consolidated load factor of 87.8%, while domestic routes in Colombia reached a healthy 84.8% during the third quarter 2017.
In the nine months ending on September 30, Avianca reported a $67.3 million USD net income, above $17.8 million in the same period of 2016. Its total revenue for the first three quarters of the year was $3.32 billion USD, up from the $3.03 billion USD reported last year, despite the mild effects seen so far from the strike.
The strike began on September 20 when the ACDAC pilots union broke off labor negotiations, and its approximately 700 members stopped flying for Avianca. This represented more than half of the airline’s roughly 1,300 pilots in Colombia, reducing the company’s deployable capacity, measured in ASK, by 45%. Lasting for 53 days, it was one of the longest major strikes in modern aviation.
The strike came during a critical year for the airline, which has been pushing to forge a strategic alliance with United Airlines that has faced legal challenges from minority shareholder Kingsland Holdings Ltd. Early this year, Kingsland sought to block the alliance and filed suit against Avianca, its largest shareholder Synergy Group, Germán Efromovich (who controls Synergy), and United Continental Holdings Inc.
The Kingsland suit was harsh in its criticism of Avianca, saying that Efromovich has “plundered” the airline and wants to reach a deal with United solely for personal gain. It also claimed that “he torpedoed the strategic process by clandestinely negotiating a transaction with United.”
Nevertheless, on last week’s investor conference call, Avianca said that its commercial alliance with United Airlines would be agreed to before the end of this year. But because it must achieve approval from authorities in each country where it will take effect, Avianca executives said that the agreement will not be finalized for about a year. While discussing the timeline on the call, executives cited the integration agreement between Aeromexico and Delta Airlines.
In addition to other challenges, competition for routes in the Americas may be on the rise. Last week, Airbus and Indigo Partners group signed a $50 billion USD for 430 Airbus aircraft. In what the jet-maker called its biggest sale ever, the aircraft will serve flights operated by Indigo Partner airlines including Frontier Airlines of the Untied States, Volaris in Mexico, JetSmart in Chile, and Wizz Air Holdings Plc in Eastern Europe.
(Photo credit: Avianca)