Lufthansa: restructuring costs weight down profits

Adjusted for restructuring costs and non-recurring effects, the Lufthansa Group increased its profit in the first nine months of 2013 by around 47 per cent, or EUR 278m, to a total of EUR 859m.

The reported result of the Lufthansa Group for the first nine months of the year came to an operating profit of EUR 661m, against EUR 907m in the previous year. The Group was able to keep revenue steady at EUR 22.8bn, despite fewer passenger and cargo flights.

Adjusted for restructuring costs and non-recurring effects, the Lufthansa Group increased its profit in the first nine months of 2013 by around 47 per cent, or EUR 278m, to a total of EUR 859m. But in the end, non-recurring effects had an impact on the net profit for the period. This fell by EUR 450m to EUR 247m.

“We have significantly improved earnings in the passenger business. For the first time in five years, we are in the black with Lufthansa’s European traffic – thanks to the progress with Germanwings. Austrian Airlines has also returned to profitability. Our progress is confirmation of the fact that, strategically, we are on the right track. It also serves to motivate us to develop our strengths further”, said Christoph Franz, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG, when presenting the results for the first nine months.

The Score program, launched in February 2012, is having an effect. In the passenger business, the Group increased the load factor of the aircraft by managing capacity in closer alignment with seasonal demand. Outside of the two main hubs in Frankfurt and Munich, European routes to and from Germany were transferred to Germanwings, which has already had a very positive effect on the nine-month result, claims Lufthansa

Adjusted for non-recurring effects and lower fuel costs as a result of lower volumes, costs fell by 0.9 per cent across the Group, while revenue remained stable. This corresponds to EUR 171m. The passenger airlines in the Group cut unit costs, i.e. costs per available seat-kilometre (CASK), by a total of 1.2 per cent for the period from January to September. Unit costs even fell by 1.8 per cent once the reduction in fuel costs was factored in.

Lufthansa German Airlines, which includes Germanwings, contributed a positive operating result of EUR 300m to the business segment’s profit in the first nine months of 2013, an increase of EUR 189m over the same period last year.

Swiss generated an operating profit of EUR 182m, which was EUR 9m more than in the previous year. Austrian Airlines achieved a profit of EUR 19m for the first three quarters and increased its normalized result by EUR 11m. The previous year’s result of EUR 210m included positive non-recurring effects from the transfer of operations from Austrian Airlines to Tyrolean.

The effectiveness of the Score measures can also be seen in the key financial figures for the Group’s other business segments. All of them were profitable in the first nine months of the year. 

Lufthansa Technik was able to increase its operating profit by EUR 101m year on year to EUR 332m. Likewise, revenue generated by the company rose by 3.6 per cent, notably as a result of third-party business outside the Lufthansa Group. Lufthansa Technik’s operating expenses were also unchanged.

Similarly, the IT Services business segment posted an increase in operating profit of EUR 4m against the previous year to EUR 17m. This was mainly the result of a rise in revenue. LSG SkyChefs, the global number one in the catering segment, reported a profit of EUR 63m for the first nine months. The decline of EUR 12m was primarily attributable to the transfer of the British subsidiaries to a joint venture, which is no longer part of the group of consolidated companies.

In the Logistics business segment, the operating profit for the first three quarters was EUR 24m below that of the previous year at EUR 43m, largely as a result of persistently weak demand on global airfreight markets. Nevertheless, Lufthansa Cargo was able to remain profitable, in contrast to almost every other cargo airline around the world. This was also possible due to the company’s strong focus on the profitable segment of high-value specialized transportation. 

For the full year, the Lufthansa Group expects to achieve a higher operating profit of between EUR 600m and 700m compared with the previous year (EUR 524m). Adjusted for non-recurring restructuring and project costs amounting to EUR 300m, earnings are forecast to be between EUR 900m and EUR 1bn. Revenue is expected to be on a par with the previous year.

Revenue in the first nine months of 2013 remained stable at EUR 22.8bn, a fall of 0.2 per cent compared with the previous year. Overall, the Group’s operating income declined slightly to EUR 24.3bn in the reporting period, a fall of 0.3 per cent.

Traffic revenue declined by 0.7 per cent to EUR 18.7bn. Operating expenses rose by 1.1 per cent in the first three quarters to EUR 23.7bn. Fuel costs fell by EUR 161m to EUR 5.4bn, a decline of 2.9 per cent, largely due to lower volumes. Included in this amount is a price hedging result of EUR -99m. Fees and charges fell by 0.2 per cent on the previous year, in particular due to a lower number of flights.

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