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JetBlue Founder David Neeleman Still Has Some Way to go to Turnaround TAP Air Portugal

JetBlue Founder David Neeleman Still Has Some Way to go to Turnaround TAP Air Portugal

JetBlue Founder David Neeleman Still Has Some Way to go to Turnaround TAP Air Portugal

TAP Air Portugal has blamed one-off “extraordinary costs” and rapidly rising oil prices after it announced that it made a loss of €118 million in 2018.  The airline is majority-owned by a consortium of investors known as Atlantic Gateway which is headed by David Neeleman – a highly successful airline entrepreneur who has founded or co-founded a number of highly successful airlines including jetBlue, Brazil’s Azul Airlines and Westjet.

Atlantic Gateway took control of TAP Air Portugal in 2015.  The former government-owned airline was ridden with debt (around $677 million at one point), lacking strategy and operating an ageing fleet of aircraft.  Neeleman and his team had a plan to turnaround TAP Air Portugal, using its position on the western tip of Europe to connect with both North and South America – the so-called “Atlantic Gateway”.

As Neeleman put it in one interview: “There’s no other major city on the European continent that’s closer than Lisbon… Portugal is just so well positioned as a hub to bring people into Europe”.

Shortly after taking control of the airline, TAP Air Portugal placed an order for 53 brand new aircraft worth billions of Euros with European aerospace giant Airbus.  Along with 39 single-aisle A320neo family aircraft, TAP Air Portugal also ordered 14 of reworked A330neo widebody aircraft, signing up to become the aircraft type’s launch customer.

The then chief operating officer of Airbus, John Leahy said TAP Air Portugal would be “reborn” with such an ambitious fleet renewal.

But the latest financial results show there is still much left to do.  The airline explained that up to 80% of the €118 million losses it incurred in 2018 were attributable to initiatives that are “essential” for the company’s turnaround programme.  Rising fuel prices had also increased costs by as much as €169 million, and the Brazilian exchange rate devaluation also had a negative impact on TAP’s revenues.

TAP had been doing well to reduce annual losses in recent years – in 2015, the airline reported a loss of €156 million but by 2017, it managed to turn a profit of €21 million.

Other takeaways from the financial results include:

  • The airline made a loss despite reaching a new revenue record of €3.25 billion – which is an increase of over 9% on 2017.
  • It also carried a record number of passengers – up 1.5 million to 15.8 million passengers.
  • Over 500 new employees were hired in the last 12-months – bringing the airline’s workforce to 1,700 employees.
  • A cost-cutting programme shaved €115 million off the airline’s accounts
  • Over 1,000 employees at a Brazilian subsidiary were made redundant
  • A third part maintenance division performed well, increasing sales to €185.1 million in 2018.

These results sure do look like a real mixed bag.  On one hand, TAP Air Portugal is making great strides in renewing its fleet, improving the onboard product, and increasing punctuality as well as cutting unnecessary costs.

On the other, TAP is showing just how susceptible it is to changing market conditions at the moment – for example, it had to cancel around 2490 flights last year, costing it over €40 million.

Those kind of cancellations were caused by things like air traffic control delays that plagued much of Europe last year – the situation is likely to be even worse in 2019 as Summer fast approaches.

If anyone can turn around an airline, then it will be a David Neeleman-led team.  Here’s hoping 2018’s losses mark the turning point to longterm and sustainable profits.

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