Page 99 - RUSRptOct18

9.2.3 Aviation corporate news
Russian state air carrier Aeroflot reported RUB6.3bn ($93mn) net IFRS income for the second quarter of 2018, beating the consensus expectations 2.5-fold, and Ebitda of RUB14bn exceeded expectations by 60% despite the 13% year-on-year decline. This is good news for Aeroflot that has been trailing investor expectations on weak January-June Russian Accounting Standards (RAS) results and further suffered from fears it could be directly sanctioned by the US . In the second quarter "higher yields, which were up 10% y/y in 2Q18, as well as stringent cost controls, were the chief factors behind the positive surprise," VTB Capital commented on September 1. Aeroflot also approved initiatives on both the revenues and the cost sides to mitigate the adverse effects of rising oil prices, has reappointed key managers, and could present a new strategy in September, which will focus on accelerating the growth in international traffic, launching new regional bases and hubs, and continuing to digitalise the business. VTB notes that the third quarter is not likely to see the same performance due to absence of "buoyant demand during the first half of the World Cup." "Still, hikes in fuel surcharges, a weaker rouble and the remainder of the World Cup," lead VTB to expect "8% y/y yield growth in 3Q18, and that, together with cost control, might underpin a stronger performance over 2H18." The bank now sees Ebitda decline by "moderate" -11% y/y in 2H18F (vs. the 57% y/y drop in 1H18) making forecasted 2018 EBITDA at RUB43bn. "Given the 8% positive stock reaction after the [second-quarter] results, our 12-month Target Price of RUB 132 now implies a 19% ETR [estimated total return]: Hold reiterated," VTB concluded. "Given that 1H18 EBITDA was already positive, we see upside to our full-year estimates if the company's cost-cutting efforts continue to be so effective," Sberbank CIB commented on August 30.
Aeroflot reported solid operating results for August and 8M18. In August 2018, the group's passenger traffic growth accelerated to 14% y/y (vs 12.4% for July). It increased 15.8% y/y on domestic flights and 8.9% on international flights. Passenger turnover rose to 11.8% (vs 10.2% for July). For 8M18 passenger turnover was 8.8% higher, including 8.7% on international flights and 11.0% on domestic flights. Passenger traffic increased 9.8% (+8.7% on international flights and 10.7% on domestic flights), while passenger load factor fell 0.08 ppt to 83.3%. Aeroflot has reported solid operating results for August, which was not boosted by additional traffic from the World Cup. The main growth came from domestic flights, particularly driven by traffic from Pobeda and Rossiya. The reported results indicate that Aeroflot is on track to meet its full year target of 10% passenger turnover growth. Passenger load factor also remains strong, which is positive for Aeroflot's profitability. At the same time, operating results are not typically catalysts for the stock, while the high oil price is the key negative parameter for Aeroflot at present and is the main reason why the stock has underperformed the market.
Russian national air carrier Aeroflot is moving away from using foreign-made planes to buying Russian-made planes and says it will place a new order for 100 Sukhoi Super Jets domestic short-distance aircraft with about 87-seat capacity, Vedomosti daily reported on September 9. Reportedly, the total cost of 100SSJs is over $3bn, though the company plans to receive those gradually at lower cost. Aeroflot is the largest user of SSJs and in September took on the 49th jet of this category into the fleet. The share of Russian jets in the fleet is growing and now amounts to 14%. SSJ-100,
99 RUSSIA Country Report October 2018 www.intellinews.com