Lufthansa Group raises operating profit for first half-year

Deutsche Lufthansa AG reports an operating profit of €114 million for the first six months of 2014, an improvement of €41 million on the €73 million of the same period last year. Total revenue for the period amounted to €14.2 billion, a decline of just under 2.1%.

Adjusted to exclude non-recurring expenditure totalling some €105 million – for such actions as the accelerated installation of the new Lufthansa Business Class seating and provisions relating to the Score programme – the first-half operating result amounted to €219 million, a €75 million year-on-year improvement.

The prime reasons for the improved result were the positive impact of the new depreciation policy for aircraft and spare engines which was adopted at the beginning of the year and the enhanced cost structures in the passenger business segment.

The net result for the first half-year amounted to €79 million, a €124 million improvement on the prior-year period.

“For the full year 2014, we are confirming our profit guidance, despite the unusual adverse developments in the second quarter. This quarterly performance was shaped by a number of one-off effects, such as strikes and currency devaluations. At the same time we have presented a comprehensive work programme with quality, growth and innovation initiatives, which we will drive forward with great determination. In doing so, we are also forging the right path for strengthening the Lufthansa Group’s competitiveness and future viability,” Simone Menne, Chief Officer Finance & Aviation Services of Deutsche Lufthansa AG, said.

“The goals already announced in this regard include raising the contribution to overall revenues from new businesses, new platforms and the Group’s service business segments from the present 30% to 40% between now and 2020.”

The positive impact of enhanced cost structures and lower depreciation needs was countered by factors which contrived to lower operating profits, particularly in the second-quarter period.

Overcapacities – especially on North and South American services, on European routes and, more recently, on Asia-Pacific routes – prompted price declines in both the passenger and the cargo segment.

The strike in April by Vereinigung Cockpit pilots’ union at Lufthansa also eroded €60 million from the first-half group operating result, while the impairments required on outstanding receivables in the recently-devalued Venezuelan bolivar removed a further €61 million.

The Group has already responded to the declines in passenger and cargo revenues by reducing its planned further seat-kilometre capacity growth from the original 5% to 3%.

The first-half operating result for the Passenger Airline Group amounted to €-96 million, a €32 million decline on the prior-year period. Lufthansa and Germanwings reported a first-half operating result of €-146 million (down €55 million), while Austrian Airlines posted an operating result of €-44 million (down €9 million). Swiss reported a first-half operating profit of €92 million, a €29 million improvement on the prior-year period.

Lufthansa Technik achieved a first-half operating profit of  €206 million, only €13 million below the high level of the prior-year period. LSG SkyChefs reported a first-half operating profit of €18 million, largely in line with prior-year levels, and IT Services raised its first-half operating result by €6 million to €11 million.

The Lufthansa Group aims to increase the share of total revenues which is contributed by its service business segments, its new businesses and its new platforms (including the new WINGS multi-platform concept for point-to-point air services away from the Group’s major hubs) from the present 30% to 40% between now and 2020. This goal is part of a broader raft of measures, including quality and innovation drives, through which the Group aims to participate even more substantially in the further growth of the aviation sector.

In the shorter term, the Lufthansa Group expects the markets to remain weak in the second half of 2014, though with the capacity reductions already initiated the situation should ease somewhat compared to the first-half period. For 2014 as a whole the Group remains confident of posting an operating profit of around €1 billion, or €1.3 billion excluding non-recurring items. And for 2015 the Group currently expects to achieve an operating profit of around €2 billion.

The first half of 2014 in figures

Total revenue for the first six months of 2014 amounted to €14.2 billion, a 2.1% decline on the same period last year. Total operating income also declined 2.4%, to €15.2 billion. At the same time, total first-half operating expenditure was reduced by a more substantial 3.7% to €15.0 billion. Fuel costs for the period declined by €260 million or 7.4% to €3.2 billion. The figure includes a €23 million loss from fuel price hedging activities. Fees and charges were 0.1% above their prior-year level.

The Lufthansa Group achieved an operating profit of €114 million for the first half of 2014. The net result for the period amounted to €-79 million, a €124 million improvement on the first six months of 2013. First-half earnings per share rose from the €-0.44 of 2013 to €-0.17.

The Lufthansa Group increased its investments in modernizing and maintaining its aircraft fleet to €1.3 billion in the 2014 first-half period. All in all, the Group invested €1.6 billion, some €196 million more than in the same period last year. Cash flow from operating activities totaled €1.7 billion, while free cash flow (operating cash flow less net capital expenditure) amounted to €546 million. Net debt stood at €1.6 billion, down €81 million year-to-date. The balance sheet equity ratio capitalization principles amounted to 16.6%, down 4.4 percentage points from the end of 2013.