Lufthansa in profit, but intensifies measures to improve earnings
In the first nine months of the year, the Lufthansa Group generated an operating result of EUR 628m, EUR 96m less than in the first nine months of last year. Profits were hit particularly hard by record fuel prices.
The persistently intense price pressure, the air traffic tax and the costs of EU emissions trading certificates also impacted on earnings.
Christoph Franz, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG, said, “Despite strong headwinds, the Lufthansa Group has generated a respectable result, especially in comparison with the rest of the industry. The earnings contributions from our service segments were particularly helpful. The first projects in our SCORE programme are also having an effect. We are making progress on the costs within our control. However, that is not enough to earn adequate margins.”
The Group increased its revenue by 6.1 per cent to EUR 22.8bn and the net profit for the period of EUR 474m was 64.6 per cent higher than the previous year, which was characterised by one-off effects.
At the end of the third quarter, the service segments were all profitable and better than last year. As in prior quarters, they boosted the consolidated operating result. The MRO segment increased its operating profit to EUR 227m. The Catering and IT Services segments also reported operating profits of EUR 73m and EUR 13m respectively.
In passenger traffic, the Group’s largest operating segment by revenue, the airlines Lufthansa Passenger Airlines, SWISS and Austrian Airlines earned a total operating profit of EUR 345m in the first nine months of the year, down by 2.5 per cent on the previous year. Positive effects included the sale of bmi, which lost money last year, and the restructuring of Austrian Airlines.
Continually high fuel prices were nonetheless extremely testing for the airlines. This was particularly visible in the nine-month operating result for Lufthansa Passenger Airlines. It closed the third quarter with an operating profit of EUR 64m, which was less than half of last year’s figure. Alongside the high oil price in conjunction with the weak euro, earnings were depressed by the persistently intense pressure of competing with low-cost airlines and carriers from the Middle East.
“We are tackling the challenges posed by the changes in our industry head on. We are in the process of modernising our organisation and making it more efficient, and we are reinventing the way in which we work together”, said Franz. “At the same time, our passengers can enjoy the best Lufthansa there has ever been. We are currently investing more than ever before in our fleet and in our on-board and ground products.”
Austrian Airlines’ operating result of EUR 73m was an improvement of EUR 107m on the same period in the previous year, mainly thanks to the transfer of operations to the cheaper Tyrolean Airways platform. “Following a difficult restructuring process, Austrian Airlines is on the right track”, emphasised Franz. SWISS reported a profit of EUR 163m. This was nonetheless 33.2 per cent lower than last year.
Whereas demand in the passenger business increased over the first nine months of the year, the Logistics segment saw a fall in demand. Targeted capacity reduction stabilised the load factors for the aircraft, but the operating result nonetheless fell by 61.8 per cent to EUR 66m.
In view of the slump in profits and dwindling demand, which is normally a sign of an impending downturn in the macroeconomic environment, CEO Christoph Franz announced that the steps to improve earnings would be intensified. “The environment in which we have to operate is getting more and more demanding. And we don’t yet have the level of profitability we need to be able to make the required investments. So we will have to intensify our efforts. This applies in particular to the airlines which are directly exposed to these external factors, but also to our service companies.”
For 2012 alone, the Group estimates that fuel costs will be EUR 1.1bn higher than in 2011. Fuel hedging, which makes kerosene costs more predictable for the company, also loses its effect when prices remain high for an extended period. Franz said, “We really have to shift up a gear to engage with the international competition and keep doing justice to the expectations of our shareholders, customers and employees: with sustained financial success, outstanding products and secure, long-term employment.”
Thanks largely to the service segments’ stabilising effect on earnings, the Group is still expecting higher revenue and an operating profit in the mid three-digit million euro range for the full year. This forecast does not include the projected restructuring costs for the reduction of jobs planned as part of the SCORE programme. However, it is currently assumed that the amount recognised in the operating result will not exceed EUR 100m for 2012. “Our aim is clear”, said Franz. “We want to remain one of the world’s leading airline groups.”
In the first three quarters of 2012, the Lufthansa Group’s revenue totalled EUR 22.8bn – an increase of 6.1 per cent over the same period last year. Traffic revenue improved by 5.4 per cent to EUR 18.8bn. Overall, the Group’s operating income went up to EUR 24.4bn in the reporting period, an increase of 4.7 per cent.
Operating expenses rose by 5.6 per cent in the first nine months to EUR 23.7bn. One of the main reasons was the EUR 972m rise in fuel costs, which came to EUR 5.6bn in total. This represents an increase of 21.2 per cent. This figure includes a positive result from price hedging of EUR 154m – just a quarter of last year’s hedging result. Fees and charges were up 4.6 per cent on the previous year.
The Lufthansa Group reported an operating result of EUR 628m in the first three quarters, down by EUR 96m compared with the previous year. The net profit for the period was EUR 474m, an increase of 64.6 per cent. It includes a result from discontinued operations of EUR 36m following the sale of British Midland Ltd. this year. The improvement is also due to the negative changes in the time value of hedging options recognised in the same period last year. Earnings per share improved to EUR 1.04.
Lufthansa invested EUR 1.9bn in the reporting period. Of this sum, EUR 1.6bn went on expanding and modernising the fleet. Cash flow from operating activities came to EUR 2.4bn and free cash flow (cash flow from operating activities less net capital expenditure) to EUR 975m. For the first nine months of the year, the Group has net debt of EUR 2.0bn. Its equity ratio is 28.8 per cent.