Euro depreciation dents Air Mauritius earnings; makes shareholders anxious
The December quarter results for Air Mauritius Ltd triggered concern among shareholders and created uncertainty in the market over the liquidity position of the company, following an unfavourable gearing ratio owing to losses of Eur 2.7 million.(Image: airplane-pictures.net)
For the quarter ended 31 December 2014 national carrier Air Mauritius Ltd recorded losses of Eur 2.7 million as compared to profits of Eur 8.6 million for the corresponding period last year, upon depreciation of the Euro and drop in revenue on account of fiercer competition.
Even though total passengers carried increased by 0.5% to 375,156, the passenger load factor dropped from 77.5% to 73.1% when compared to the corresponding quarter of last year. As such, revenue decreased from Eur 128.0 million to Eur 123.7 million and operating expenses went up by Eur 2.9 million to reach Eur 116.9 million, mainly on account of the depreciation of the Euro and increased operations.
The results of the quarter under review has been significantly affected by the depreciation of Euro with the net negative impact amounting to a towering Eur 8.2 million.
On the balance sheet side, the high level of liabilities, which amounted to Eur 315.8 million against shareholder funds of Eur 70.2 million, caused the debt ratio to escalate to 4.5:1. Accordingly, upon the release of the results, there was uncertainty regarding the liquidity position of the company.
Shareholders of the company were questioning whether Air Mauritus will slide into bankruptcy with such an adverse performance, and on the Stock Exchange of Mauritius (SEM), no shares were traded for this security yesterday, 4th May 2015. Indeed, the SEM issued a notice to halt trading in the aviation major’s shares as a security measure.
It is only when Air Mauritius released an official communiqué that trading resumed today, the 5th May 2015. The communiqué saw Air Mauritius reassure its shareholders and other stakeholders that it is not under any threat of insolvency and the gearing ratio is as per industry norms. With its own cash generation and banking facilities, Air Mauritius is in a position to meet its financial obligations, as and when they fall due.
Moreover, the communiqué says that, “Based on expert advice and in line with most international airlines’ practices, it is the policy of Air Mauritius to hedge a part of its fuel requirements. Currently, the Company is benefitting from prevailing lower prices on its overall fuel bill.”
In conclusion, it is to be noted that even though Air Mauritius has taken the initiative to increase flights to potentially lucrative markets, the Euro depreciation has seriously impacted the company’s financial results amidst intensifying competition. However, in its statement, the management said that the company will benefit from the recent drop in the fuel prices.
It is the next financial review for 12 months ending on March 31, 2015, that will confirm the financial fragility, or otherwise, of the company, with shareholder funds laboring under severe debt obligations in the current scenario.