Lufthansa group reports an operating loss of EUR 381m in the first quarter of 2012
Record quarterly revenues for the Passenger Airline Group were not enough as high fuel costs, taxes, fees and charges depressed earnings.
Deutsche Lufthansa AG generated revenue of EUR 6.6bn in the first quarter of 2012, 5.6 per cent more than in the same period last year. The increase was mainly due to higher traffic revenue, which in turn stemmed from a higher sales volume and price increases in the passenger business.
However, increased fuel costs, the air traffic tax imposed in Germany and Austria and the costs of emissions trading in force in Germany since 2012 all had an adverse effect on the Group's operating result. At the end of the first quarter it came to EUR -381m, a fall of EUR 212m compared with the figure for the same quarter a year ago.
Altogether the net result for the period was EUR -397m. The increase of EUR 110m is largely due to the negative changes in the time value of hedging options recognised in the first quarter of last year.
Christoph Franz, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG, said, "Higher taxes, fees and charges put a massive strain on our quarterly result. It was well down on last year despite record revenue. We cannot wait until politicians also recognise the damage that one-sided taxes and charges do to aviation and to Europe's reputation as a place to do business. Our SCORE programme is our own response to these additional burdens. It will safeguard Lufthansa's position as number one in Europe and enable us to maintain our place in global competition in the long-term."
By the end of 2014, the SCORE programme that was launched in early 2012 is intended to improve the Group's operating result by at least EUR 1.5bn compared with 2011. The measures include greater cooperation between Lufthansa and Germanwings, which, having combined frequent flyer programmes and bookings, will now also run joint capacity planning for decentralised traffic from Düsseldorf, Berlin, Hamburg, Stuttgart and Cologne. A new code-sharing agreement has also been in place between Austrian Airlines and Germanwings since March 2012.
Lufthansa also intends to make sustainable savings of EUR 200m in this year alone by means of a Group-wide purchasing project. Double-digit million euro savings are also expected from the optimisation of local traffic within the airline group. Furthermore, costs in administrative areas are to be cut by 25 per cent.
The Group intends to realise a total of one third of the SCORE volume by reducing staff costs. This is to be achieved by merging duplicate functions and eliminating activities which create no added value for the customer, as well as by outsourcing activities to Shared Services units.
These measures are expected to result in the loss of 3,500 full-time jobs in administrative departments worldwide over the coming years. Christoph Franz emphasised, "We can only safeguard jobs for the long term and create new openings if we reorganise the administrative functions and accept job losses now." The aim was to achieve the cuts preferably by means of socially responsible measures, he added.
With regard to the Passenger Airline Group segment, Franz notes that, "Growth in the passenger business was and is necessary to maintain the market position of the Lufthansa Group. The logical and predictable next step is to reduce the complexity in the Group that this growth has brought about."
As the largest company in the Group, Lufthansa Passenger Airlines will contribute more than EUR 900m to the earnings improvement programme, of which EUR 600m is to come from cutting costs and EUR 300m from boosting revenue. This is to be achieved partly by cancelling loss-making routes and restricting capacity growth, which has been set at zero for 2012 and a maximum of four per cent for the years 2013 and 2014 each.
This means that the company's fleet will not be enlarged until 2014 and new aircraft will replace older ones. By 2020, only four different fleet families should then be in service in European traffic at Lufthansa Passenger Airlines. "We will make the changes where it makes no difference to customers or where it actually constitutes an improvement", said Franz. The company increased the share of First and Business Class revenue on long-haul routes from 53.6 per cent in the same period last year to 54.9 per cent in the first quarter of 2012.
Lufthansa intends to remain the European airline with the most First Class seats by far. Never before in the history of the company has Lufthansa invested so much in its product, according to Franz. As he remarked, all Lufthansa aircraft are currently equipped with new seats, on long-haul routes First, Business and Economy Class are new, there are more Lufthansa Lounges than ever and the new airport in Berlin as well as new terminals in Frankfurt and Munich will bring advantages to Lufthansa customers.
For the full year 2012, the Group is still expecting revenue growth compared with the previous year. The operating profit is predicted to be in the mid three-figure million euro range.
After a difficult start to the year, the expectation of persistent cost pressure over the remainder of the year appears from today's perspective to have been prescient, in particular with regards to fuel. The prevailing economic uncertainty makes developments in demand difficult to forecast. The mood has lightened overall, however, and this, together with capacity discipline across the industry allows the airlines to manage yields and pricing actively.
The extent to which these can be established on the market will determine earnings development in 2012 as much as the success of cost measures. We again expect the Group's service companies to have a stabilising effect on earnings performance. Any restructuring costs in connection with job losses as part of SCORE are not included in this earnings forecast and may have an adverse effect on the result for the current financial year. They will be quantified as the earnings improvement package progresses.