VLM - Press

VLM Airlines Reports improved Profit Levels For 2004
The largest carrier serving London City Airport delivers rapid growth

Antwerp, 24 March 2005

Highlights 2004

VLM Airlines reports pre-tax profit of € 1.5 m for the full year
Passenger numbers up 28% to 553,795
Excellent overall on time performance of 89% for the year 2004
Further expansion in 2005- two new routes already introduced
Chairman’s Statement (by Mr Jaap Rosen Jacobson)

Last year when I highlighted the results of 2003, I explained why we had to go through a year of consolidation. It was necessary to do that in order to lay the foundations for our current expansion. The 25% turnover growth in 2004 was beyond our expectations. Furthermore, the company successfully launched two new routes and increased capacity on existing ones.

Such a large expansion in one year often leads to a decrease of profit margins, as it requires important investments and start-up costs. Thanks to our organisation, commercial flair and the continuous devotion of our staff, we have been able to mitigate these costs. This is a comfort for the future and we expect this will have a positive impact on the 2005 results and beyond.

Commercially, the company has strengthened its position. Every route was operated independently, without a code share partner. VLM Airlines will continue to improve its product, offering passengers the best value for money they can find in the market, as well as short check in times every time they board our aircraft. In 2004 we consistently outperformed major UK Airlines with an overall On-Time-Performance of 89% according to the UK CAA statistics. This will remain a priority in 2005.

Early 2005, we introduced further significant service improvements for our passengers. We launched a completely redesigned website and a new online booking engine. The results have been impressive so far. In the first month of the launch, we saw an increase of 30% of passengers making their reservation through the internet. We expect by the end of this year, over 30% of our passengers will find their way to www.flyvlm.com to book their flights in a fast and customer friendly way.

In February 2005, we also introduced e-ticketing via our own distribution channels, which offers a more convenient and environmentally friendly alternative to paper tickets. VLM Airlines is one of the first regional airlines to offer this service and is well ahead of the global airline industry objective of banning paper tickets by 2007. Before the end of 2005, the airline also plans to offer e-ticketing through travel agents and so further demonstrating itself as an innovative airline. We have more plans on the e-commerce front, and are currently evaluating the possibilities to offer web-based check-in and the possibility to introduce a change and cancellation module to our web-booking engine.

Needless to say, we owe the Company’s success to our staff and to our passengers, who appreciate the quality of our product and service. Competition in the Airline industry over the coming years will remain fierce, but I’m convinced that our daily commitment towards our passengers will continue to be a competitive advantage and will help us to grow further.

Results For The Year

For the year ending 31 December 2004, the Company reported a pre-tax profit of € 1.5 million versus € 637,000 in 2003. Net profit for the full year results amounted to € 948,000, an increase of 190% compared to the net result of € 327,000 in 2003. The operating profit for the twelve months ending 31 December 2004 was € 1.8 m.

The results were heavily impacted by high fuel prices, but partially offset due to the stronger Euro versus US Dollar exchange rate. VLM Airlines is one of the only airlines within Europe that did not implement a fuel surcharge in 2004, and as such has absorbed these extra costs without a recharge to its passengers.

Revenues
Revenues for the full year were up from € 60.7 m to € 75.6 m, an increase of 24.6%.
Despite the large capacity increase and the further increased competition on a large number of destinations that keep average fares under pressure, revenue per seat increased by 1.3%, while the overall load factor further increased from 52% to 54%.

The Company transported 553,795 passengers (Charter and Scheduled passengers together) in 2004, which represented an overall increase of 28% over 2003. On scheduled flights, the Company carried 31% more passengers than the previous year.

In 2005 two new routes were launched; Brussels to Southampton, launched on January 10th, and the new Amsterdam to London City three times daily service which will commence on April 4th.

In the week commencing 14th March, the Company reached a new milestone of 13.000 passengers per week, transporting a record number of 13,305 passengers. For 2005, the Company expects to carry well over 650,000 passengers, which would represent another increase of nearly 20% over 2004.

Expenses
Operating charges amounted to € 73.8 m for the year ending December 2004, versus € 59.3 m the previous year.

The increase in fuel prices to record levels added approximately € 0.5 m to the operating charges over 2003 averages. Management systematically evaluates the merits of risk management, such as foreign currency and fuel hedging. Over 2004 and 2005, some 75% of the foreign exchange rate exposure, existing from the conversion of GBP to EUR revenue flow and to a lesser extent costs in US$, has been covered.

The Company further pursued its efforts to keep its cost structure further under control. Distribution costs were significantly reduced thanks to the persistent focus on e-commerce, which resulted in an increase of reservations made on-line in 2004 to 17% of total bookings made versus only 3% in 2003.

VLM Airlines offers full onboard service, which further strengthens its product over its competitors, along with its excellent frequency and outstanding on time performance. Charges for passenger services are therefore a large part of its operational costs. Other costs items such as landing and handling charges and maintenance cost have grown in line with the capacity expansion.

Balance Sheet
In 2004, VLM Airlines expanded its fleet from 10 to 14 Fokker 50 aircraft. This required important investments, and the fixed assets have therefore increased from € 6.1 m in 2003 to € 7.4 m in 2004. This increase in assets further explains the large increase in balance sheet total, which now reaches € 23.0 m compared to € 19.9 m.

The balance sheet remains stable and net equity grew with 21.9% to € 5.3 m, assuring a further strengthening of the solvency ratios of the Company. Cash flow was positive for the year and cash at bank increased satisfactorily with 13.7% over 2003.

The excellent start the Company has taken in the first months of 2005 indicates that further reserves will be accumulated throughout 2005, enhancing the balance sheet and securing the future of the Company.

Commercial Developments
2004 was a year of expansion for VLM Airlines, with new routes launched and increased frequency on existing routes. The Company launched 2 new routes: Liverpool to London City and Jersey to London City. Capacity on Manchester to London City was increased to ten rotations per weekday and on Antwerp London City to six.

The Company topped European rankings of On-Time-Performance, well above its main competitors.

The Company’s strength in performance and product has been well proven on the Luxemburg to London City route, were the Company went head to head with Luxair. Strong demand resulted in an increase in frequency from three to four rotations a day in February 2005. Furthermore, during the same month, the Rotterdam to London City route was increased from seven to ten times daily.

The expansion continues, and VLM Airlines will now launch a new service from Amsterdam to London City, with three flights a day as of April 4th. The Company believes strongly in the future of this new route, and hopes it will be able to step up frequency on this route before the end of 2005.

Meanwhile in January a service was launched between Brussels and Southampton, in addition to the existing five daily flights between Brussels and London City.

Further growth of the network is anticipated, but will depend on opportunities in the market. The Company always carefully evaluates such opportunities and will continue to proceed with caution in order not to jeopardise its financial stability.

The financial information in this press release is based on extracts of The Consolidated Financial Statements of The Company, which have been audited.