Lufthansa Group posts sound first-quarter results

Dino D'Amore
By Dino D'Amore May 7, 2014 09:27

Lufthansa Group posts sound first-quarter results

Deutsche Lufthansa further increased its operating result for the first quarter of 2014, thanks to continued progress with its Score results-enhancement programme. In what is traditionally the weakest quarter of the year, the company posted an operating result of €-245 million, a €114 million or 31.8% improvement on the same period last year. Adjusted for non-recurring items, such as the cost for the accelerated installation of new Lufthansa Business Class seats, which accounted for some €55 million in this period alone, the first-quarter operating result was improved by €105 million to €-190 million. The improved quarterly operating result can be largely attributed to an increase in profits at Lufthansa Technik and the positive impact of the revised depreciation policy for aircraft and spare engines which was adopted at the beginning of the year. In addition, the Lufthansa Group also improved its cost structures in the passenger segment.

Adjusted to eliminate fuel-price and currency factors, first-quarter unit costs for the passenger business segment were a 3.7% improvement on their prior-year level. The Group has set itself the goal of reducing such costs by 4% for 2014 as a whole by implementing various Score-related actions. Total revenue for the quarter amounted to €6.5 billion, a 2.5% decline on the prior-year period. Lower traffic revenues were generated for the period, not least as a result of adverse currency movements. The revenue result was achieved with a 1.2% reduction in total flights operated, owing mainly to fleet modernizations and the use of larger aircraft. The net result for the period amounted to €-252 million, a substantial €206 million or 45.0% improvement on the first quarter of 2013.

“This is a sound first-quarter performance and a slight improvement in our results for the period in a difficult market environment,” says Simone Menne, CFO and Member of the Executive Board at Deutsche Lufthansa. “We have improved our cost structures, and have taken various actions to enhance the quality of our revenues. And we will continue with our consistent efforts to further raise our efficiency.”
The Lufthansa Group has further confirmed its previous expectation of posting an operating profit of between €1.3 and 1.5 billion for 2014 as a whole. The Group also remains confident of reporting a 2014 operating result adjusted for non-recurring items of between €1.7 and 1.9 billion. The projections remain unchanged despite the Verdi strikes at German airports in March and the three-day strike at Lufthansa, Germanwings and Lufthansa Cargo by the Vereinigung Cockpit pilots’ union in April, which reduced Group earnings by over €70 million.

“Our advance passenger bookings saw sizeable declines during the Vereinigung Cockpit pilots’ strike,” Menne continues. “And, with the competition we face on our European network and the strong pricing pressures on our North American routes, we haven’t yet been able to raise them again. So, despite the currently tense market environment, we are doing our utmost to recoup these earnings losses in our ongoing business.” Some assistance should be provided here by the fall in fuel prices: full-year estimates for this cost item are now lower following the first-quarter results than they were in March.

The Group’s Passenger Airlines business segment reported an operating result for the quarter of €-332 million, a €31 million improvement on the same period last year. The progress here was partially due to the revised Group depreciation policy, whose lower costs added €86 million to the quarterly result. At the same time, the decline in revenue per available seat-kilometre was offset by cost economies, which were reflected in a clear reduction in cost per available seat-kilometre. Among the Group’s member airlines, Lufthansa and Germanwings posted a quarterly operating result of €-286 million (a €6 million year-on-year improvement), Swiss achieved an operating profit of €6 million (up €22 million) and Austrian Airlines posted an operating result of €-54 million (a €2 million improvement on the prior-year period).
Lufthansa Technik made the most positive contribution to the Lufthansa Group’s first-quarter results, with an operating profit for the period of €97 million, a €16 million improvement on January-to-March 2013. The Group’s IT Services segment raised its first-quarter operating result by €2 million to €5 million. LSG SkyChefs reported a first-quarter operating result of €-4 million, a €7 million year-on-year decline which was in part attributable to adverse currency movements. And with rigorous cost discipline in a still-tough market environment, Lufthansa Cargo achieved a solid operating profit of €21 million, which compares to €28 million for the prior-year period.

Total revenue for the first three months of 2014 amounted to € 6.5 billion, a 2.5% decline on the same period last year. Total operating income also declined 2.5%, to € 7.0 billion. At the same time, total first-quarter operating expenditure was reduced 6.0% to € 7.2 billion. Fuel costs for the quarter declined by € 157 million or 9.4% to € 1.5 billion. The figure includes a € 20 million loss from fuel price hedging activities. Fees and charges were 0.8% below their prior-year level, owing in particular to the lower flight volumes.

The Lufthansa Group achieved an operating result of € -245 million for the first quarter of 2014, a period that is traditionally the weakest of the year. The net result for the quarter amounted to € -252 million, a substantial € 206 million improvement on the first three months of 2013. First-quarter earnings per share rose from the € -1.00 of 2013 to € -0.55.

The Lufthansa Group increased its investments in modernizing and maintaining its aircraft fleet to € 755 million in the first-quarter period. All in all, the Group invested € 859 million, some € 141 million more than in the same period last year. Cash flow from operating activities totalled € 855 million, while free cash flow (operating cash flow less net capital expenditure) amounted to € 195 million. Net debt stood at € 1.6 billion, down € 61 million year-on-year. The balance sheet equity ratio as calculated in accordance with the new IAS 19 capitalization principles amounted to 17.9%, up 2.5 percentage points from the first quarter of 2013.

Dino D'Amore
By Dino D'Amore May 7, 2014 09:27
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