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November 2008
News & Views
business watch
AVIATION
Alitalia circled; British profits nosediving
CAI, a group of 16 Italian entrepreneurs and businesses, is reportedly thrashing out a deal to bail out Alitalia, after clinching a deal with the airline’s unions. It may cost as much as €1bn to rescue Italy’s largest airline, which sought bankruptcy protection in August after buckling under the weight of crippling oil prices and soaring losses. The airline has long been the centre of a Franco-German dogfight, with Lufthansa widely believed to have the upper hand on Air France-KLM. Ireland’s no-frills airline Ryanair filed a complaint with the EU over the Italian rescue plan, saying the bailout amounted to illegal protection of failed companies by national governments. Meanwhile, shares in British Airways fell 7% in September to their lowest level for more than five years as the airline announced a big drop in passenger traffic during the month. The UK flag carrier forecast that it would only break even for the year to March 2009 against the record operating profit of £875m last year. BA said premium traffic had fallen 8.6% in September, one of the steepest year-on-year declines it has suffered. Non-premium traffic volumes fell 4.1%.
pharmaceuticals Israel helps Japan to swallow generic drugs
Teva, the world’s largest generic drugs company, is creating a joint venture with a Japanese counterpart as it aims to seize market share in the country’s fast-growing generic market. The Israel-based company will set up an 50-50 partnership called Teva-Kowa Pharma, with the unlisted Kowa through a joint initial investment of €220m. The partnership plans to research and develop generic drugs specifically for the Japanese market over the next few years. Japan is the world’s second-largest medicines market. The companies are targeting sales of €740m by 2015. The Japanese government — long suspicious of drugs that do not have a major brand attached — has only relatively recently started to push for more widespread use of generics, as it faces soaring healthcare costs alongside its ageing population. Indeed, the government now aims to double the utilisation of generic use to 30% by 2012. Sawai, the country’s largest generic drugs manufacturer, has annual sales of just €250m compared with Teva’s €6.7bn in 2007.
hospitality
Marriott warning for hotel industry
Citing overwhelming economic pressures, Marriott International reported a 28% third-quarter decline in profit compared with the same period last year. The hotel giant, considered a bellwether for the industry because of its global brand portfolio, posted net income of $94m, down from $131m a year earlier. Marriot’s brands include Courtyard and Ritz-Carlton. For 2009, Marriott predicts that revenue per available room outside the US will be flat and will “at best” fall by 3% in North America. Like most hotel groups, which largely no longer own hotels but manage them or take a franchise fee, Marriott’s forecasts have been partly based on the opening of new hotels. In its statement, Marriott predicted the financial crisis would prompt owners or franchisees to delay or cancel projects, leading to write-offs. Following Marriot’s results, shares of all the major hotel brands fell. Meanwhile, European chain hoteliers reported a dismal August with big falls in demand and profit, according to the latest HotStats survey from TRI Hospitality Consulting. Average occupancy dropped in nine of the 10 city markets surveyed and profit fell in eight of the 10. The report said: “It’s the first time this year we have seen such large declines. Key leisure destinations such as Prague, Vienna and Amsterdam felt the full impact of fewer overnight guests.”
automotive
Europe revs up motor demands
A week after US Congress approved a $25bn “green tech” bailout for Detroit automakers, Europe’s car industry requested a €40bn loan package and incentives to scrap vehicles more than eight years old. Carmakers urge low-interest loans “to help secure a sustainable market for current and newly developed fuel-efficient technologies” through the European Automakers’ Association (ACEA). Europe’s demands came as the UK became the latest market to report a sharp fall in new car registrations, down 21.2% in September. The scrapping scheme, ACEA said, would accelerate consumers’ uptake of fuel-efficient technologies and put new cars on roads. The European parliament recently approved a tough timetable requiring carmakers to cut vehicles’ CO2 emissions sharply by 2012, despite industry fearing lost jobs.
luxury
Lanvin looks East; Hermès says ‘non’
Lanvin is in talks to sell a stake to an unnamed Qatari investor in a deal that could value the revitalised French fashion house at around €150m. News of the negotiations came as the outlook for the luxury goods market was starting to deteriorate and credit facilities were drying up, strengthening the hand of cash-rich investors. Lanvin’s controlling shareholder is the Taiwanese media magnate Shaw-Lan Wang, who reportedly wants to sell a stake of 35%—40%. Meanwhile, Hermès’ controlling family has no plans to sell shares, according to chief executive Patrick Thomas. Speculation that family members, who together own 73% of the French luxury house, could sell all or part of their stakes have kept Hermès’ share price sky high — it has gained 30% since January in spite of the global economic meltdown — and allowed the stock to trade on the highest valuation multiples of the European luxury sector. Hermès has a dazzling market capitalisation of €11.98bn and trades on a 2009 price to expected earnings per share ratio of 36. This is more than double the industry average.
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