Aeroflot Announces Q1 2018 IFRS Financial Results

30 May 2018

Moscow, 30 May 2018 – Aeroflot Group (“the Group”, Moscow Exchange ticker: AFLT) today publishes its condensed consolidated interim financial statements for the three months ended 31 March 2018, in accordance with International Financial Reporting Standards.

Aeroflot Group financial highlights for Q1 2018

  • Revenue increased to RUB 111,942 million, up 8.5% year-on-year;
  • EBITDAR reached RUB 10,767 million;
  • The net loss totalled RUB 11,543 million.

Shamil Kurmashov, PJSC Aeroflot Deputy CEO for Commerce and Finance, commented:

“This is the first time that Aeroflot Group has published its consolidated IFRS financial results for the first quarter of the year. This has been made possible by the Company’s focus on improving its internal accounting systems with the goal of accelerating the closing of the accounting period and submitting its financial reporting. Publishing Q1 financial results will increase transparency for stakeholders, above all shareholders and investors, and will help them deepen their understanding of the Company and its seasonal trends.

“The first three months are traditionally weak for the Russian aviation market. This is due to a number of factors, primarily seasonality of demand, as fewer passengers fly during this period. Thus, despite continued growth of the air transportation market, the number of passengers carried in Q1 2018 was 9% lower than in Q4 2017, which can also be considered as a low season for the industry, and 38% lower than the high season of Q3 2017. The seasonal demand effect can also be clearly seen in Aeroflot Group’s results: in Q1 2018 passenger traffic was 7% lower than Q4 2017 and 29% lower than Q3 2017. Lower passenger traffic means a lower passenger load factor, fewer average daily flight hours per aircraft, lower yields and hence a higher share of fixed costs in the overall cost structure. These results should, therefore, be read in the context of seasonal trends.

“In Q1 2018, Aeroflot Group carried 11.0 million passengers, a 6.6% year-on-year increase. Yields grew by 3.6%, supported by currency effects, and leading to accelerated revenue growth for the quarter relative to annual rates. Revenue amounted to RUB 111.9 billion, up 8.5%. An increase in leasing expenses due to significant fleet expansion, as well as our initiatives to improve working conditions and increase salaries for cabin crew, led to a decrease in the overall financial result compared to the same period last year. The net loss amounted to RUB 11.5 billion; we plan to compensate for this during the coming quarters.

“The major part of the year is still ahead of us, including the high season, when Russia will host the football World Cup. Aeroflot and other Group airlines fly to all 11 World Cup host cities and are ready to provide best service to our passengers. Given the upcoming World Cup and continued market growth, we are expecting high demand for both international and domestic flights. The Group will continue to actively manage revenue and control costs to ensure strong financial results for the year.”

Key operating highlights

Q1 2018 Q1 2017 Change
Passengers carried, thousand PAX 10,985 10,302 6.6%
- international 4,888 4,578 6.8%
- domestic 6,097 5,724 6.5%
Revenue Passenger Kilometres, million 28,743 26,934 6.7%
- international 17,568 16,531 6.3%
- domestic 11,175 10,403 7.4%
Available Seat Kilometres, million 36,624 34,510 6.1%
- international 22,504 20,847 7.9%
- domestic 14,120 13,663 3.3%
Passenger load factor, % 78.5% 78.0% 0.5 p.p.
- international 78.1% 79.3% (1.2 p.p.)
- domestic 79.1% 76.1% 3.0 p.p.

In Q1 2018, Aeroflot Group carried 11.0 million passengers, up 6.6% year-on-year.

Key financial highlights

RUB million, unless stated otherwise Q1 2018 Q1 2017 Change
Revenue 111,942 103,125 8.5%
EBITDAR[1] 10,767 13,742 (21.6%)
EBITDA1 (7,732) (1,136) 6.8х
Loss for the period (11,543) (5,339) 2.2х

Revenue

RUB million, unless stated otherwise Q1 2018 Q1 2017 Change
Passenger traffic revenue 96,896 87,205 11.1%
- scheduled passenger flights 91,107 82,336 10.7%
- charter passenger flights 5,789 4,869 18.9%
Cargo flight revenue 3,778 3,378 11.8%
Other revenue 11,268 12,542 (10.2%)
Total revenue 111,942 103,125 8.5%

In Q1 2018, Aeroflot Group’s revenue increased by 8.5% year-on-year to RUB 111,942 million.

Revenue from scheduled passenger flights increased by 10.7% year-on-year to RUB 91,107 million, driven by an increase in passenger traffic. Revenue growth was affected by an increase in yields, primarily on international routes, due to the weakening of the ruble against the euro and the consequent effect of this on FX-denominated revenue.

Revenue from charter flights increased by 18.9% year-on-year to RUB 5,789 million, due among other factors to the growth of Rossiya’s charter programme.

Cargo revenue rose by 11.8% year-on-year to RUB 3,778 million as cargo and mail volumes grew by 9.6%.

Other revenue decreased by 10.2% year-on-year to RUB 11,268 million due mainly to a decrease in the ruble equivalent of dollar-denominated revenues from airline agreements, as well as to a decrease in the maintenance of other airlines’ aircraft.

Operating costs

<> 14.3%

RUB million, unless stated otherwise Q1 2018 Q1 2017 Change
Aircraft servicing and passenger services 21,908 21,154 3.6%
Staff costs 21,404 18,588 15.1%
Operating lease expenses 18,499 14,878 24.3%
Aircraft maintenance 8,469 8,179 3.5%
Sales and marketing, administration and general expenses 6,160 6,171 (0.2%)
Depreciation, amortisation and customs duties 3,864 3,800 1.7%
Other net expenses 9,192 7,864 16.9%
Operating costs less aircraft fuel 89,496 80,634 11.0%
Aircraft fuel 34,042 27,427 24.1%
Total operating costs 123,538 108,061

In Q1 2018, aircraft fuel costs increased by 24.1% year-on-year to RUB 34,042 million. This was due to a 17.0% year-on-year increase in the average price of aircraft fuel in rubles amid changes in the price of oil, as well as an increase in flight numbers and flying time.

Operating costs, excluding aircraft fuel costs, increased by 11.0% year-on-year to RUB 89,496.

Expenses related to aircraft servicing and passenger service amounted to RUB 21,908 million, a 3.6% increase year-on-year, due primarily to the growth of passenger traffic and increased airport fares. This item was also impacted by new initiatives aimed at boosting service quality.

Staff costs rose 15.1% year-on-year and amounted to RUB 21,404 million, as a result of an increase in salaries for aircraft captains, effective from the start of 2018, as well as due to an increase in the number of staff to support operational growth.

Operating lease expenses amounted to RUB 18,499 million, a 24.3% increase year-on-year, due to expansion of the fleet (net increase of 51 aircraft, or 21.1%, on operating leases compared with 31 March 2017), as well as a year-on-year increase in the Libor rate in Q1 2018 (average three-month Libor rose by 0.85 p.p. to 1.93%).

Aircraft maintenance costs grew by 3.5% year-on-year to RUB 8,469 million. Maintenance costs were significantly affected by an increase in volumes of technical maintenance carried out inside the Group, which damped growth of this item. An increase in expenses on maintenance works by third parties amid an increase in passenger numbers was partially compensated by the strengthening of the ruble against the dollar compared to the year-ago period.

Selling, general and administrative expenses (SG&A) remained almost flat at RUB 6,160 million, a 0.2% decrease, due to stricter control over expenses.

Amortisation and customs tariffs increased insignificantly by 1.7% year-on-year to RUB 3,864 million.

Other expenses increased by 16.9% year-on-year to RUB 9,192 million, as a result of an increase in reserves for aircraft maintenance in accordance with accounting policy, bank fees, and expenses on global distribution systems amid increase in passenger traffic.

As a result of the impact of these factors, EBITDAR totalled RUB 10,767 million.

Non-operating gains and losses

RUB million, unless stated otherwise Q1 2018 Q1 2017 Change
Operating loss (11,596) (4,936) 2.3х
Profit/(loss) from investments, net 215 (57) -
Finance income 1,718 1,971 (12.8%)
Finance costs (2,769) (2,038) 35.9%
Realised hedging result (1,293) (1,391) (7.0%)
Share of results of associates (2) (11) (81.8%)
Loss before tax (13,727) (6,462) 2.1х
Income tax 2,184 1,123 94.5%
Loss for the period (11,543) (5,339) 2.2х

In Q1 2018, finance income decreased by 12.8% year-on-year to RUB 1,718 million, reflecting lower earnings from exchange-rate differences, as well as an overall trend in Russia for looser monetary policy.

Finance costs increased by 35.9% year-on-year to RUB 2,769 million, primarily due to expenses incurred from discounting of insurance deposits on aircraft leases issued in Q1 2018. The increase in finance costs was partially compensated by a decrease in debt in 2017, which led to a reduction in the cost of debt servicing.

The realised loss from hedging of RUB 1,293 million was attributable to a realised result related to hedging of USD-denominated revenue through USD-denominated lease obligations.

Aeroflot Group’s net loss for Q1 2018 amounted to RUB 11,543 million.

Debt and liquidity

RUB million, unless stated otherwise 31.03.2018 31.12.2017 Change
Loans and borrowings 3,530 3,181 11.0%
Finance lease liabilities 88,257 100,689 (12.3%)
Pension liabilities 931 922 1.0%
Total debt 92,718 104,792 (11.5%)
Cash and short-term investments 63,248 54,909 15.2%
Net debt 29,470 49,883 (40.9%)
Net debt / EBITDA 0.6x[2] 0.9x -

Total debt as of 31 March 2018 decreased by 11.5% compared to 31 December 2017, to RUB 92,718 million. The reduction was due to adjustments to the valuation of financial leases following the strengthening of the ruble against the dollar as of 31 March 2018 compared to 31 December 2017.

As of 31 March 2018, undrawn lines available to Aeroflot Group from major Russian and international banks amounted to RUB 99.1 billion.


[1] EBITDAR = EBITDA + operating lease expenses. EBITDA = operating profit / (loss) + depreciation & amortisation + customs duties.

[2] Calculation is based on EBITDA for 12 months, ending on 31.03.2018, totalling RUB 49,419 million.