Air Mauritius Ltd (AIRM.mu) 2019 Annual Report

We have extracted the Chief Executive Officer’s Statement from the 2019 annual report of Air Mauritius Ltd (AIRM.mu), listed on the Mauritius Stock Exchange:

Dear Shareholders

The year under review, a transition year, has been a challenging one for our airline. In fact, this is testified by the negative results of Eur 21.7 M posted for the financial year ended March 31, 2019.

Digging deeper into our results, there are some silver linings. We fared well indeed in many areas, carrying more passengers than ever (over 1.7 million for the first time) in spite of difficult trading conditions especially intense competitive pressures, volatility of fuel prices and exchange rates. We progressed on our fleet renewal and improvement program refurbishing the cabins of two of our Airbus A330-200 aircraft and prepared for the entry into service of the Airbus A330neo, which unfortunately were delayed by a few months. These major investments in product together with our investments in service design and delivery allowed us to resume the Indian ocean leadership at the World Travel Awards 2018 edition in Durban in October last year with awards for Leading Indian Ocean Airline, Leading Indian Ocean Airline Brand, Leading Business Class, Leading Cabin Crew and Leading Airport Lounge. We were pleased to be recognised again at the World Travel Awards 2019 edition held in Mauritius last month where we maintained our leadership position in all five areas. Customer Satisfaction also improved by 3%.

Our costs increased as a result of the investments in fleet and product which amounted to Eur 15.9M, fuel hikes and MOU conclusion with the Unions. The fuel cost increased by 17.5% to Eur152.1M or 30% of our operating costs. Employee costs increased by Eur 9.6M as a result of the new MOUs signed with the Unions, four years after the expiry of the previous ones. In spite of all the challenges, the Board and management felt that the hardworking employees of Air Mauritius had to be encouraged. It is to be noted that the company would have wiped out its losses had it not been for the increase of the fuel bill to the tune of Eur22.6M.

We had recognised that the year would be difficult from the beginning of the year and the Board concluded that the business model of the company was no longer sustainable in the face of so many variables affecting our performance. Some urgent interventions had to be made on capacity deployment for the third and fourth quarters in the light of massive capacity injections by seasonal operators. At the same time, we enlisted the support of CAPA and PWC to assist us with the review of our business model and strengthening of our financial position. Much work has been done already and it is expected that the major highlights of the plan will be made available soon.

A few principles are already emerging and will be detailed at the Annual Meeting of Shareholders in July. First, is a review of the network based on a three pronged action plan – simplify, consolidate and grow. Second, is to procure the most appropriate fleet to deliver the network and in this context, the single aisle fleet will be the next one to tackle. Third, will be our revenue generating capabilities, fourth, a focus on cost management and finally the appropriate organisation to deliver results. The new model will lay emphasis on digital transformation to accelerate the transition to the new Air Mauritius.

Furthermore, an overarching principle will be the national role of the airline and in this context we have impressed on our shareholders that such a mission will need to be better supported. A recent study by the Air Transport Action Group issued last year indicated that Aviation contributes 3.6% to World GDP including direct, indirect, induced and catalytic effects. This figure increases to 10. 6% for Small Island States. For Mauritius, travel and tourism, using the same principles account for 23.7% of GDP according to the latest figures published by the World Travel and Tourism Council. We therefore firmly believe that a recognition of the value of Aviation, and incidentally, national airlines for Small Island States, can help contribute even more to their national economies. We are pleased to note that this idea is gathering momentum among our shareholders as testified by the unanimous support to the three Resolutions presented at the Special Meeting of Shareholders in June.

An Extraordinary General Assembly of shareholders held on June 10, 2019 voted three resolutions which are the first steps to restructure the airline, strengthened its capital structure and boost its cash flow. We have acquired shares in the Mauritius Duty Free Paradise Co Ltd, our shares in Pointe Coton Resort Hotel Co Ltd have been disposed and our capital structure has been reinforced with the sale of unissued shares to Airports of Mauritius Co Ltd. These measures also favour a more equitable integration of Air Mauritius within the country’s aviation ecosystem, taking into account its vital contribution to the national economy.

As we build for our future, we also reinforce our status as a stronger Air Mauritius with a robust, motivated and competent workforce. The Air Mauritius Institute is being inaugurated and will offer a wide range of specialised, technical and management courses. It will include the Flying Academy for the training of pilots in Mauritius.

All these steps have been/are being designed to take Air Mauritius to greater heights. However, timely implementation is crucial. The key objective is to deliver safe and profitable operations and build a more resilient and agile Air Mauritius, equipped to fully play its role as the national airline of Mauritius while delivering value to its shareholders, its customers and its employees.

Somas Appavou, FRAeS
Chief Executive Officer