During the period January 2011-June 2012, Aerolineas Argentinas and Austral reported "high costs measured in relation to income" obtained: it is that, according to a report from the General Audit Office (AGN, for its acronym in Spanish), of 100 pesos collected during that period by the -re nationalized companies to mid-2008, they ended up spending 149.

The inspection body, approved and circulated its investigation last week, states that in the analyzed year and a half operating revenues amounted to U $ S 2.054 million. 90% of this total relates to the sale of tickets, i.e. the passenger, while the rest of the collection comes from the transfer of cargo.

On the other hand, total business expenses were U$S 3.038 million during the period in question, an amount made up of operating costs (U$S 2.476 million), and structure (U$S 562 million).

This performance represents a loss of US $ 984 million in 18 months, which also includes a deficit operating income (the difference between operating revenues and operating costs) of US $ 422 million.

Resources and Expenditures

As for the collection, the Federal Watchdog acknowledges in its report that Aerolineas and Austral as a whole increased its operating income by 17% between January 2011 and June 2012, but clarified that this increase is due more to the rise in the price average per passenger, which went from US $ 166 in 2010 to US $ 205 in the first half of 2012, an increase of 23% (see increases for the Patria Grande).

However, this was not enough to match the evolution of the operating costs of the airlines, in the same period rose 21%. In numbers, it was US $ 141 million in a year and a half, mainly due to rises in fuel (25%), board staff (44%), and own maintenance (39%).

To these figures we must add the cost structure, which increased by 35% in 18 months, representing about US $ 53 million intended primarily to personnel expenses.

When dimensioning the different growth rates of both resources and expenditures, the audit noted that the group formed by the airlines reached their income to cover only 68% of the expenses carried out between January 2011 and June of 2012, representing four percentage points less than in 2010.

Aside to all this, it is noted that between January 2011 and June 2012 the national government transferred the Group's airlines about $ 5,772,000.

Cheaper Flights, Fewer Seats

In the management of Argentine Airlines and Austral some indicators that explain the evolution of operating costs appear. For example, in the 18 months under review they increased flight hours (6%), frequency (9%), and even the operational aircrafts (10%).

To these data are added improving ticket sales and a seemingly consequent rise in the load factor of the aircraft, which rose from 72.8% in 2010 to 75.5% in June 2012.

Why apparent?; because during the same period there was a reduction in the seats offered in relation to passengers, as there were in 2010 on average 141 seats per aircraft, but for the first half of 2012 that number dropped to 122.

The Pilots

Returning to an earlier finding of AGN, operating aircraft went from an average of 52 in 2010 to 57 in June 2012. Meanwhile, the staff called Group Airlines (which includes Airlines, Austral, Aerohandling and Jet Paq), increased 14% and, occasionally, the provision of pilots climbed to 26%.

So, taking Airlines and Austral together, the average piolet per plane went from 21 to 24 during the period investigated by the inspection body, when the average in other competing companies is 13 per plane.

Competition in an Industry of "Tight Margins"

When it began the process of re nationalization, the then brand-new authorities of the Airlines submitted a 2010-2014 Business Plan in which, among other things, is intended to achieve the self-financing of national undertaking for 2012.

That document also posed a comparison between the national airlines with other competing companies: Lan, Aeromexico, Latam (merger between LAN and TAM), South Africa Airlines and Air New Zealand in terms of precisely the business plan.

The AGN, meanwhile, took the same data to compare what competing relationship between its income and expenses, taking into account numbers of the Airlines.

It was thus observed that for every 100 pesos collected, the New Zealand Airline spent 89, the Mexican 91, the South African airline 94 and Lan 95; hence the auditors observe "the tight margins in the industry."

Meanwhile, according to the same equation, the state company Argentina disbursed during the investigation period 149 pesos for every 100 pesos in revenue.

To Purchase

As for how the business expenses spread over the AGN it detected that the fuel segment represents between 23% and 30% of total disbursements of competing companies, while for the Group Airlines that ratio reached 42%.

And on the side of payroll, other allocates between 18% and 25% of their total expenditure. For re-nationalized company, remuneration consuming 46% of expenditures.

Another index made in the report to measure fuel expenses and salaries is named AKOS, which is obtained by multiplying the total number of seats offered by kilometers flown.
Using this indicator, the Watchdog says that Austral and Argentine Airlines spent per seat offered 75% more on staff than other similar companies in the sector, and 24% more on fuel.

From these observations, and according to the information provided by the Financial and Economic Management, the General Audit Office concluded that "during the period January 2011 to June 2012 Argentine and Austral Airlines jointly loss increased by 43% over 2010. And the main cause of this negative change is the deterioration of the operating result by 52%. "

Increases for the Patria Grande

In the commercial aviation market, the Group participates in five networks: domestic (provinces), regional (South American countries), Inter (other American destinations), Europe and Oceania, comprising some 70 destinations.

As mentioned, the rates increased in the period under review averaged 23.5%. Now to compare how the different networks grew, the AGN shows that the largest increases were given in domestic flights, which had a total- always an average- US $ 119 to US $ 161 (35.5% ); and the inter-services, an increase of US $ 350 to US $ 457 (30.6%).

Different is the outlook for prices for travel to Oceania, which rose an average of US $ 465 to US $ 547 (17.6%) and regional flights (U $ $ 148 to US $ quite appear behind 157 -6.1% -), and the European network (U $ 531 to US $ 514 which, unlike the rest, fell 3.2% between January 2011 and June 2012).

The audit analyzed that, during the period studied, "although Airlines and Austral have a high uptake of the domestic market (domestic), with two thirds of the total, show a decreasing trend is explained by the loss in all major destinations, at the hands of the company LAN Argentina."

And, in effect, "the six major destinations in the country (Cordoba, Mendoza, Iguazu, Ushuaia and Tucuman) (national) companies have been losing market shares in every single one except in Cordoba."

The monitoring organization added that of the 15 destinations analyzed Airlines "has gained share in six, it remains the same in three and lost the other six," and notes that "in seven points where Lan actively participates wins fees market "the national airlines (Sao Paulo, Santiago de Chile, Rio de Janeiro, Porto Alegre, Asuncion, Miami and Lima).

However, the auditors added that the state company "participates with good market share in Barcelona, Bogota, Madrid, Rome, Rio de Janeiro, Miami, San Pablo and Asuncion."

"Loses Across Its Networks"

Analyzing the performance of Argentine Airlines, from the operational point of view, the AGN ruled that between January 2011 and June 2012, "the company loses all its networks, which further complicates the situation. The first half of 2012 is equally deficit to a strong improvement in domestic, overshadowed by the bad results (of services) internationally "shown in 2010, but.

So it is concluded that "the local market based, in part, outside the operating loss in the first half of 2012".

In addition, the report argues that "the inclusion of maintenance costs of foreign branches with its 441 employees, operating income deteriorates signature on the international destinations." 

"It shows that all networks were operationally deficit during the period, with Europe (the most negative) and the least bad domestic global accounts of the company," says AGN verbatim and projects a gloomy assessment, the noted that "the situation described, cannot display in the short term a balance between revenues and expenditures of the company."

Simulator

Given that the cost of staff Argentine Airlines measured by AKOS rate is 1.7 times higher than other competing companies, the AGN tested a kind of dry run to determine how the numbers would be if excess expenses will be deducted in human Resources.

Although in this sort of methodological effort, the results would still be negative. Namely, if the operating deficit in the audited period was US $ 417 million; the "simulated", i.e. without surplus personnel costs would drop to U $ 173 million.

And in overall numbers, if the total deficit was US Argentine Airlines $ 969 million, the simulated would fall to US $ 582 million.