Play recently published its investor report for Q2 2022. Some significant points have been reached, and others have not. Nerveless, this is an Icelandic airline; there will be a paragraph about fish in the belly.
Since in creation in 2021, Play Airlines has grown to a 6-plane fleet made of Airbus A320NEO and A321NEO. The company initially targeted Europe but now targets North America and passengers crossing the Atlantic with a connection at Keflavik. It now deserves 26 cities in Europe and 4 in the United States.
Q3 2022 is the company’s first real test, as 2021 was more of a proving test with three aircraft active at the same time and low brand loyalty. This summer, Play operated with six jets.
The primary information of this investor report is the first positive quarterly EBITA for the start-up airline. If this means nothing about the whole year’s profitability, this is an important milestone for a new company.
EBITA stands for earnings before interest and Taxes. It is essential because it highlights the ability of a company to sustain its operational cost. The business is in a good way to be profitable as the basis for global profitability is there.
It does not mean everything is fine and success is next door, but the essential is there.
They expected to have a positive EBITA for the full financial year, but it won’t be the case for some reason that the CEO and CFO highlighted.
Tourism and connecting passengers
Play targets three primary markets:
- European and North American visiting Iceland
- Icelander traveling south for a sunny vacation
- European and North American crossing the Atlantic via Iceland.
The last two categories are the ones filling the planes in these previous months. Icelanders quickly adopted Play for their summer vacations, and budget travellers jumped on the price offered to cross the Atlantic. However, direct flights suffered for various reasons.
One reason is that the Icelandic market lacks some capacity to accommodate additional travellers during the summer season. Passengers would find a flight to Iceland but nowhere to sleep during their stay and would therefore cancel or defer their wish to visit Iceland. This is indeed the case as tourists came back in full force after two years impacted by the pandemic.
Another reason is that Play is new in the sector, and the other airlines have established and sometimes long-term relationships with tour operators. Additionally, these tour operators still used some credit for canceled flights and travel due to the pandemic and stayed with Play’s competitors to use these credits.
Fish did not fill the belly
Aside from tourism, one of the biggest industries in Iceland is fishing. Part of these export is made via air. For Icelandic airlines, it’s the ice on the cake; any airline start-up in Iceland must consider this.
The country’s proximity allows for the rapid transportation of seafood to markets in Europe and North America. In addition to exporting fresh fish, Iceland also produces a variety of frozen and processed seafood products that are shipped overseas by air and sea. The country’s seafood industry is vital to its economy, with fish and fish products accounting for more than 60% of Iceland’s total exports.
This summer, however, things did not work as planned. Airports across Europe could not cope with the increase in passenger numbers, which impacted Play’s activities. The airline’s objective during the summer months was to protect its current operation. The cargo activities started in October, and fish are now filling the bellies of Play aircraft.
Auxiliary revenue has not yet materialized
Finally, low-cost airlines generate a substantial part of their income through auxiliary revenue. This can be an add-on to the ticket price, such as additional luggage or a pre-booked meal, or a travel product not directly related to the ticket, such as hotel rooms, car rentals, or event tickets.
The CEO noted that their booking engine was relatively new, and not all possibilities were developed. This point should be solved in the coming weeks and months when new parts of the booking engine become live.
What future for Play?
The outlook still looks bright for the CEO if they can fix the few points noted above that reduce the airline’s capacity to generate profits.
On paper, this looks promising. Let’s see if this can be confirmed by facts in the future.
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