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Robust performance reflects solid business fundamentals

gategroup reports strong increase in profitability in 2010

gategroup reported strong increases in profitability measures for 2010, a turning point for most of the airline industry, gategroup’s main customer base, as the worldwide economic recession began to ease its grip. Airlines in Asia, the U.S. and Latin America performed significantly better compared to 2009 as passenger traffic increased and the industry remained cautious about adding capacity. The industry in Europe lagged, however, as the sovereign debt crisis in the Eurozone proved to be an economic drag.

Other external events, such as the impact of Icelandic volcano, labor unrest within the industry and disruptive weather at the beginning and end of the year also took their toll on European carriers. For gategroup, the ash cloud that caused European air space closures for nearly a week, resulted in an operational impact estimated at CHF 21.0 million in revenue and CHF 8.0 million in EBITDA.

Notable developments in 2010 included:

  • A successful capital increase, approved by shareholders at the Extraordinary General Meeting in October, that resulted in net proceeds of CHF 240.8 million. The increase was accomplished with no price dilution and had the added benefit of expanding gategroup’s shareholder base and increasing liquidity in stock trading. The transaction strengthened the equity position of the balance sheet and provided funds to accelerate growth initiatives.
  • Execution of two acquisitions that significantly expand gategroup’s global footprint and position the Company for growth in attractive markets. In Canada, the acquisition of Cara Airline Solutions was made at an attractive price and establishes gategroup in a mature market where it had no previous presence. In India, the core Gate Gourmet brand acquired a majority interest in Skygourmet, the country’s leading airline caterer with a presence in seven major cities. With airline traffic growing in India recently at a double-digit rate, the acquisition offers high potential for revenue growth.
  • Continued generation of cross-selling opportunities among gategroup’s 11 brands, which offer a comprehensive offering of products and services. Examples included Virgin Atlantic Airlines, which chose Gate Gourmet, Pourshins and Supplair to serve all 10 of its US gateways. Pourshins and Supplair continued to develop and expand business with United Airlines, and Pourshins and Harmony did the same with Emirates. Another increasingly important driver of revenue has been gategroup’s offering of onboard retailing services for airlines seeking to increase ancillary revenue.
  • Investments to foster long-term growth. In Tokyo, Gate Gourmet opened a new unit at close-in Haneda Airport, which was timed to coincide with the start-up of international flights when a new runway opened in the fall. Hawaiian Airlines, Singapore Airlines and Thai Airways became customers there in 2010 and Delta Air Lines followed in early 2011. (Neither the Haneda nor Narita units were seriously affected by the March 11, 2011, earthquake, and both are operational.) At London Heathrow, Gate Gourmet opened an asset-light flight assembly center that provides increased operating flexibility. Gate Gourmet also moved into a new flight kitchen in Guayaquil, Ecuador. The deSter brand installed new machinery capable of using recycled plastic to create food contact items, welcomed by customers seeking “green” solutions.
  • Agreements with union-represented workers in a number of locations. These included some 6,600 US-based employees at Gate Gourmet, Gate Safe and Gate Serve and 2,000 employees at Gate Gourmet and Gate Aviation in the UK.

A look ahead
Although the airline industry recovery appears to be on track, the macro-economic picture is still in a state of transition and challenges remain. “Looking ahead in 2011, we remain cautiously optimistic. We expect the US economy to continue moderate growth; for Europe to exit the recession; and for robust growth to continue in the Asia-Pacific region,” Dubois said.

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Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.

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