Aviation earnings to get a boost from low oil prices

Tan Son Nhat International Airport in HCM City. Rising numbers of air passengers are expected to boost air travel companies’ earnings in the remaining days of 2018.-VNA/VNS Photo Huy Hung

Brent crude on Monday gained nearly 2 per cent to trade at near US$60 a barrel, having lost nearly 30.5 per cent from its one-year high of $86.29 a barrel made on October 3.

US benchmark West Texas Intermediate (WTI) was up 1.5 per cent to $51.17 a barrel on Monday. It has shed 33 per cent from its year-high of $76.41 a barrel early last month.

Oil prices had previously gained significantly in the one and a half months to October on worries the US sanctions on Iran would cause a shortage on the global market.

In fact, oil production has not declined at all. According to Reuters, the US, Russia and Saudi Arabia in October produced total 33 million barrels per day – a record high – accounting for a third of global output.

Fuel accounts for 30-40 per cent of total costs for aviation firms, thus, a sharp drop in oil prices would lead to lower fuel expenses and boost airlines’ profit margins.

In the third quarter of 2018, when oil prices were on the rise, Vietnamese aviation companies posted lower quarterly profits despite their revenues improving from a year earlier.

National flag carrier Vietnam Airlines (UPCoM: HVN) recorded its margin profit fell to 12.2 per cent from 18.8 per cent.

Its post-tax profit dropped 68 per cent year-on-year to VND458 billion ($20.3 million) in the last quarter. After nine months, Vietnam Airlines’ post-tax profit lost 13 per cent year-on-year to VND1.71 trillion.

According to Vietnam Airlines, the company in the past quarter suffered from higher fuel expenses (37.5 per cent higher) and rising exchange rate (a 2 per cent increase), while the performance of some member companies was also affected by the increase of oil prices.

In a report, Viet Capital Securities Corporation (VCSC) said the decline of oil prices would benefit the earnings of budget carrier Vietjet (HoSE: VJC).

In the first nine months of the year, core business revenue rose by half but post-tax profit added only 15.5 per cent year-on-year because of higher fuel expenses.

In addition to lower oil prices, which are expected to boost aviation firms’ earnings in the fourth quarter, Vietjet’s use of new-generation airplanes would help the company save 16 per cent of fuel consumption.

Meanwhile, the increase of air passengers is expected to help those firms achieve higher earnings from their core businesses.

Viet Nam leads Asia in terms of air passenger growth for the last five years with its annual growth rate estimated at 28.9 per cent, twice that of the following country.

According to Phu Hung Securities JSC (PHS), services and additional product sales would temporarily help aviation firms offset their costs caused by purchasing oil at their high prices in October.

PHS forecasts that Vietnam Airlines would keep its passenger growth rate at 12 per cent, level with the growth of the whole sector, and increase sales of additional products and services to support business performance.

Meanwhile, Vietjet’s earnings are expected to grow after the company launched new routes to Japan, South Korea and Taiwan to meet the travel demand of Vietnamese people.

According to the Airports Corporation of Vietnam (ACV), the number of air travellers in the first half of 2018 rose 14 per cent year on year to over 50 million and is expected to beat last full-year’s figure of more than 90 million.