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CEO Comment

jon

Focusing on solid operation and fulfilling growth potential

Focusing on solid operation and fulfilling growth potential

“It is a matter of great satisfaction, now that Icelandair Group is being publicly traded, to be able to present our new shareholders with reports of good profits.”

JonKarlIt gives me special pleasure to address you here for the first time following the profound transformations that our company has now undergone. Last year was, in every way, an extremely interesting year for our company. In February, it was announced that the company would be listed on the Iceland Stock Exchange, a process that was eventually to take a large part of the year. Our staff nevertheless managed to maintain a very clear focus on the day-to-day operation of the company, which explains the good results achieved over the year. It is quite clear that a selling process of this kind can be quite draining and distracting, as it creates a certain atmosphere of uncertainty. All our employees therefore deserve great praise for the excellent outcome of this year. It is a matter of great satisfaction, now that Icelandair Group is being publicly traded, to be able to present our new shareholders with reports of good profits – in fact some of the best results in the company’s history. The good results, ISK 6.1 billion in EB ITDA, can be attributed to our exceptional employees and their vast pool of knowledge and experience that they have placed at our disposal. We expect continued growth for the company in the near future. General economic prospects are favourable, and there are forecasts of growth in the industry.

We have divided the operation of Icelandair Group into three principal Business Platforms. The largest Platform is International Scheduled Airline Operations which comprises Icelandair, Icelandair Cargo, Icelandair Technical Services (ITS) and Icelandair Ground Services (IGS). The total turnover of those companies in 2006 was ISK 42 billion, and EB ITDA was ISK 3,484 million.

The Icelandair route network is the cornerstone of our operation, and in fact the key to the success of many of the companies within the Group. The network centres on connections in Keflavik between Iceland and Europe and Iceland and North America, resulting in a high frequency and good quality of flight connections between Iceland and other markets. The results in 2006 were good in all markets, but our greatest growth was in the number of passengers travelling from Iceland. Overall, both the number of passengers travelling with Icelandair and the tonnage of cargo carried by Icelandair Cargo grew in 2006.

Our goal is to continue to improve the results of the International Scheduled Airline Operations Platform, and we are taking some very important steps to achieve this goal. Ahead lies the implementation of a new revenue management system, the installation of an in-flight entertainment system and new aircraft interiors. The new arrangements in our aircraft will completely transform our passengers’ in-flight experience. This summer we are adding three exciting new destinations to our route network, Halifax, Bergen and Gothenburg, and we are also planning morning flights from Europe to Iceland and from Iceland to North America. We also forecast substantial growth for Icelandair Cargo, where demand has increased rapidly in recent years. Economic conditions in our markets are generally favourable, we intend to grow and to increase our profits in this core business of Icelandair Group.

Strong growth characterised our operations in the Global Capacity Solutions and Aircraft Trading Platform, and profits in 2006 substantially exceeded expectations. The companies Loftleiğir-Icelandic, Bluebird and Icelease operate within this Platform. Loftleiğir-Icelandic acquired in mid-year 2006 a majority share in the Latvian charter airline Latcharter, and then doubled the size of their fleet later in the year. Icelease received and distributed nine new Boeing 737-800 aircraft. Bluebird Cargo bought two Boeing 737-400 passenger aircraft, which are now being converted into cargo aircraft. The total turnover in 2006 of the companies in this Platform was ISK 10.7 billion, and EB ITDA was ISK 1,589 million.

In recent years, we have amassed extensive and important experience in aircraft leasing and aircraft trading. Our brand name is already well known and widely respected. The company has participated in numerous business projects across the world, and our employees in this line of work have formed extremely important business connections. We perceive enormous growth potentials through our participation in the fast-growing business of aircraft trade. We intend to grow rapidly this year and are particularly looking to markets in Eastern Europe, Africa and Southeast Asia, where we have already developed solid and profitable business relationships.

Our third Business Platform operates under the heading of Travel and Tourism, where we have three strong companies: Air Iceland, Icelandair Hotels and Iceland Travel. The total turnover of these companies in 2006 was ISK 8.7 billion, and EB ITDA was ISK 1.1 billion. The operation of Iceland Travel and Icelandair Hotels underwent a profound transformation in the course of the year after several difficult operating years. The number of hotel guests grew over the year, and conference and catering activities were more successful than in recent years. The operation of Iceland Travel has been restructured from the ground up. The company’s overseas offices were sold or closed during the year, and the company is now concentrating on its core business, which is to serve foreign tourists travelling to Iceland. It has been a pleasure to witness this splendid recovery by Icelandair Hotels and Iceland Travel in 2006, and the employees of these companies deserve great credit for their role in the turnaround. Air Iceland continues to show good results, and it is satisfying to see growth on almost all routes. We foresee continued profitability for these companies with the growing number of incoming tourists and increasing economic growth in Iceland.

Fjárvakur, the financial services business of Icelandair Group, did very well in 2006. The company acquired the Estonian accountancy firm ASE . The company specialises in revenue accounting for airlines.

In 2007, we will strive to increase and strengthen our core business, that is to say international scheduled airline operations and transport of passengers and cargo, and to expand rapidly in our charter and aircraft trading activities. The economic climate in our principal markets is good and counters the very high current fuel costs. We expect strong growth in the international airline business, and we also expect the number of tourists visiting Iceland and travelling around the world to increase in the years to come. Competition is fierce in this industry, but the companies within Icelandair Group are well run and have great potential for internal and external growth. We expect 2007 to be even more prosperous than 2006. I would like to thank all the employees of all the companies of the Group for an immensely satisfying team effort this year, and I would also like to thank our shareholders for their support and co-operation. Our company is sound and commands an outstanding staff, which is the key to all our success. There are tremendous opportunities ahead, and I look forward to continued work on achieving good results in good company.

Jón Karl Ólafsson
President and CEO

Til baka, Senda grein, Prenta greinina

 

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