Lufthansa Bounces Back with $440 Million Profit in Second Quarter
By James Ruggia
August 02, 2012 10:40 PM
Lufthansa has largely compensated for a weak first quarter. From April to June, the group earned an operating profit of 361 million euros ($440 million), nearly making up the loss sustained in the first quarter. Consistent capacity and yield management in passenger and cargo traffic, clear restructuring successes at Austrian Airlines and good earnings contributions from the service companies helped achieve the second-quarter success.
In the first six months of the year, the latter all increased their operating profit in comparison with the same period last year. High fuel costs, persistent price pressure, the air traffic tax payable in Germany and Austria and fees for emissions trading certificates all diminished the group’s profit, however. At the end of the first half-year 2012, the company recognized an operating loss of 20 million euros ($24.3 million), 134 million euros ($164.4 million) less than in the same period last year. The Lufthansa Group increased its revenue by 6 percent to 14.5 billion euros ($17.65 billion). After six months, the net loss for the period came to 168 million euros ($205 million), which represents an improvement of 38 million euros ($46.3 million) on last year. This includes a result from discontinued operations of 36 million euros ($43.8 million), reflecting the closing of the sale of British Midland Ltd.
The airlines in the Passenger Airline Group business segment pursued their strict capacity and yield management in the second quarter and all successfully increased their load factors and traffic revenue. It was the rise in fuel costs compared with last year which essentially caused the segment to record an operating loss of 179 million euros ($218 million). The operating segment is again adjusting its capacity growth with the aim of continuing with the positive sales and earnings performance. In its winter flight plan 2012-13, the Passenger Airline Group plans to cut available seat-kilometers year on year by 2.5 percent. This means growth will be cut to 0.5 percent for the full 2012 year.
Lufthansa German Airlines is using the capacity reduction to phase out older aircraft ahead of schedule and for seasonal adjustments to the flight timetable. The company is removing European connections from Frankfurt to Casablanca, London-Gatwick, Arnica, Palma de Mallorca and Naples from the winter flight plan, in addition to the alterations previously adopted. The capacity measures implemented in the first half-year, along with higher traffic revenue, did have a positive effect on the company’s earnings, but were not able to make up for higher fuel expenses and costly increases of fees and charges. Lufthansa German Airlines reported an operating loss of 300 million euros ($365.3 million) for the first six months, compared to 146 million euros ($178 million) for the first six months of the previous year.
Swiss remained profitable, earning an operating profit of 48 million euros ($58.4 million). High fuel costs and the strong Swiss franc nevertheless meant that this was well below last year’s result of 104 million euros ($126.6 million). Austrian Airlines successfully completed important restructuring measures by transferring its operations to Tyrolean Airways, thus taking another step towards becoming competitive. This resulted in positive non-recurring effects, enabling the company to generate an operating profit of 26 million euros ($31.6 million) in the first half-year.
For the full year, the group is still expecting demand to be positive and is planning to continue its restrictive capacity management. At the same time, developments in fuel prices and the influence of macroeconomic factors remain hard to predict. The group is still forecasting increased revenue and an operating profit in the mid three-figure million euro range for the full year. This forecast does not include restructuring costs in connection with the SCORE program and the planned reduction of jobs included in it. On present estimates these will come to between 100 million euros and 200 million euros for the current year.
In related news, Lufthansa is cancelling its Munich-Singapore route with the introduction of the 2012-13 winter schedule. As a result, the onward flight from Singapore to Jakarta, Indonesia, will no longer be operated. Singapore and Jakarta are currently served five times a week from Munich with an Airbus A340-300. Lufthansa will continue to operate a daily A380 service from Frankfurt to Singapore, but will no longer fly to Jakarta. The final flight from Munich to Singapore and onward to Jakarta will depart on Oct. 14.