Lufthansa in profit after the first six months

Lufthansa in profit after the first six months
Quality promise has been honoured — cost discipline is paying off

12.08.04
Lufthansa is back on a successful track: after the first six months of 2004 the company returned to profit with an operating result of 33 million euro. Following a loss of 116 million euro in the first three months of the year, the Group earned an operating profit of 149 million euro in the second quarter. The revenue total at the half-way stage reached the record level of 8.3 billion euro. “We used the opportunities presented by the market systematically, we successfully offloaded our expanded capacity, and our customers appreciate our high quality,” Wolfgang Mayrhuber, Lufthansa’s Chairman of the Executive Board and CEO, said during the presentation of the half-year results. Following the crisis-ridden year 2003 the Lufthansa Group again achieved growth in the first six months of this year. Selective capacity expansion led to a marked increase in passenger numbers.

Mr. Mayrhuber identified the four pillars of Lufthansa’s successful development in the first six months as “the extension of the network through new destinations and partners in the Star Alliance, the honouring of Lufthansa’s quality promise, high innovative capability and absolute cost discipline.” Since 2003 the Star Alliance has found seven additional partners on four continents. The new Business Class concepts have met with great acclaim in customer surveys, and Lufthansa is the first airline worldwide to offer in-flight broadband internet access. “We are excellently positioned in the growth markets. The new code-sharing agreement with Air India reinforces Lufthansa’s position on the Indian traffic routes,” Mr. Mayrhuber added, “and our partnerships in China are bearing fruit.” In both markets Lufthansa is the foremost European carrier.

Cost discipline remains at the focus of attention for both the top management and the workforce. The restructuring of the Group companies LSG and Thomas Cook progressed further in the first six months. In particular, the recent collective labour agreements at Thomas Cook show that the Group is on the right track. “The prolongation of Lufthansa Technik’s joint venture with Air China in the form of Ameco Beijing is of great strategic importance for the growth market China.”

However, Wolfgang Mayrhuber cautioned against overoptimism: “The way forward is clear but we have not yet reached our goal. The underlying setting in the aviation sector remains difficult and the competitive situation fierce. Only through strict cost discipline and the rigorous continuation of the action plan that has been initiated can we operate profitably in future, too. To achieve this our company needs to become even more flexible and efficient. That is where we are concentrating our efforts.”

Assuming that no new crises occur and that the situation on the fuel market does not escalate further, Lufthansa anticipates an operating result for the full year of around 300 million euro as well as a clearly positive net result.

The successful capital increase in what is a difficult market environment demonstrated that Lufthansa also enjoys the confidence of its shareholders. The current evolution of the Lufthansa share price in no way reflects the company’s true value and perspectives. “This basically mirrors sector-wide discounts,” Mr. Mayrhuber pointed out. He explained that this tends to happen whenever the market price of kerosene is in the public spotlight. Lufthansa pursues an active risk management strategy and has hedged the prices of around 90 per cent of its fuel stock requirements for 2004 and 50 per cent for 2005. Our situation is thus significantly better than that of many other airlines.

The first six months of 2004 in figures

In the first six months of 2004 the Lufthansa Group generated 8.3 billion euro of revenue, a year-on-year rise of nine per cent. The Group’s airlines expanded their capacity in line with the higher demand and also managed to improve their load factors appreciably. These network optimisations, along with stable average yields in passenger business, caused traffic revenue to climb by 14.3 per cent to 6.2 billion euro. Other operating income fell by 10.3 per cent to 804 million euro. This includes book profits of 292 million euro from the sale of Amadeus Global Travel Distribution S.A.

The ongoing cost-cutting measures in all business segments again proved effective in the first six months of 2004. At 8.7 billion euro, operating expenses remained virtually stable despite the marked growth in revenue.

Staff costs amounted to 2.4 billion euro, compared with 2.3 billion euro in the first half of 2003. The Group’s fuel costs came to 782 million euro, which was 18.8 per cent more than in the same period of last year. However, 14 per cent alone was volume-related and ensued from the selective capacity expansion programme. Without the fuel price hedging measures, the Group’s kerosene bill would have been 90 million euro higher.

The first two quarters of 2004 produced an operating result of 33 million euro. This contrasts with a loss of 354 million euro in the first half of 2003. The net result for the first six months of 2004 was similarly positive: it rose by 431 million euro to 39 million euro. The cash flow generated from operating activities grew by 5.3 per cent to 652 million euro. In the wake of the capital increase the Group’s liquid funds exceeded its financial debts as at 30 June by 123 million euro. At the end of 2003 the balance sheet had shown net indebtedness of 590 million euro. Capital expenditure in the first six months of this year totalled 1.1 billion euro. 871 million euro of this was allocated to modernising and expanding the fleet.

January-June
+/- %
April-June

2004
2003
2004
2003

Revenue
€m
8,254
7,572
+9.0
4,360
3,869

of which traffic revenue
€m
6,210
5,434
+14.3
3,324
2,823

Result from operating activities
€m
416
-119
–
185
184

Net result
€m
39
-392
–
-23
-36

Operating result
€m
33
-354
–
149
65

Capital expenditure
€m
1,114
515
+116.3
464
306

Cash flow
€m
652
619
+5.3
393
297

Employee total on June 30
92,177
94,417
-2.4
–
–

Deutsche Lufthansa AG
Corporate Communications