Lufthansa confirms projected 2014 operating result: EUR 1 billion profit in spite of strikes

The Lufthansa Group remains confident of achieving its profit targets for 2014 – despite experiencing a difficult third quarter, and despite strike action eroding EUR 170 million from its earnings results. The Group expects to post an operating profit of around EUR 1 billion for the year, excluding the impact of any further strike action between now and year-end. The projection has been strengthened by favorable results for the first nine months: the Lufthansa Group achieved an operating profit of around EUR 849 million for January-to-September 2014, a EUR 186 million improvement on the same period last year. Adjusted for non-recurring restructuring and project costs, this represents an operating profit of some EUR 1 billion for the first-nine-month period. Third-quarter operating profit amounted to EUR 735 million, up EUR 145 million on the prior-year period.

“We are currently working flat out to implement our work program with its seven strategic action areas, to ensure that we remain competitive in the longer term,” says Carsten Spohr, Chairman of the Executive Board & CEO of Deutsche Lufthansa AG. “Quality, efficiency and innovation are our prime focuses here. We’re making huge investments in  quality and service for our customers; and we’re adopting new structures and innovative business models to tap into new growth opportunities and new customer groups. We’re also working further on our existing business areas, continually raising their efficiency. Lufthansa has shown time and again in the past that it can respond flexibly to the markets and their dynamic evolution and emerge all the stronger from the challenges of doing so; and I’m convinced that we’ll bring this strategy, too, to a successful conclusion.”    

The new work program unveiled by Carsten Spohr in mid-July should see the Lufthansa Group’s service companies and its new business models increase their share of total group revenues to up to 40%. A key contributor here will be the new multi-platform “WINGS” concept, which should bundle the point-to-point services of the Group’s passenger airlines and help tap and exploit new growth opportunities. 

The Passenger Airline Group, with its quality brands of Lufthansa, SWISS, Austrian Airlines and Brussels Airlines, should see its sales and distribution structures harmonized and the amalgamation of responsibilities for global corporate key accounts. The requisite technical foundations here will be laid by early 2016, by SWISS switching its Reservations, Ticketing and Inventory operations to the same systems that are used by the Group’s further member airlines. At the same time, the Group’s member airlines’ fare structures and classes should also be harmonized for short- and medium-haul routes. This will enable the Lufthansa Group to provide its customers with better flight and fare offers that incorporate all its member airlines’ services, simultaneously reducing the internal coordination involved. Adopting and maintaining a joint overall sales and distribution strategy will also strengthen the Passenger Airline Group’s position in competitive terms. Customers should feel the first benefits here as early as next year, through the substantially-enhanced combinability of member airlines’ product offers.

Business performance 

The Group’s service companies and Lufthansa Cargo posted strong results for the first nine months of the year, with four of the Group’s five business segments seeing year-on-year operating profit improvements. 

In the passenger airline segment, the costs and lost revenues caused by the pilots’ strikes weighed heavily on the nine-month operating result. “We must find solutions – in the interests of all our employees, our customers and our shareholders – that will ensure the long-term viability of our company for the decades ahead,” says Carsten Spohr here. “And we cannot afford to overlook this vital priority in our current collective labor agreement negotiations, either.”  

In addition to the strike actions and their repercussions, nine-month results for the passenger airline segment were also depressed by strong competitive pressures and associated yield declines. But, thanks to a combination of buoyant demand and flexible demand-based capacity management, traffic revenue was raised again in the third-quarter period. Seat load factors for the Group’s passenger airlines reached record highs in summer; and lower restructuring costs and lower aircraft depreciation requirements also impacted favorably on operating results.

While 2.2% fewer flights were operated in the period, the Lufthansa Group’s EUR 22.6  billion total revenue for the first nine months of 2014 was broadly unchanged from its prior-year level. The net profit for the period amounted to EUR 482 million, a year-on-year improvement of EUR 235 million.      

“Our results for the first nine months of 2014 represent a sound achievement in a difficult and highly competitive market environment, and one that enables us to confirm our current projections for the year as a whole,” says Simone Menne, Chief Officer Finance & Aviation Services of Deutsche Lufthansa AG. “When we look ahead, though, we can see that the economic slowdown and the continuing declines in our passenger yields in the face of such fierce competition will affect our operating scope in the year ahead. This is why we need to modify our projections for 2015, even though we expect it to produce an operating result that is significantly above this year’s. And in the medium term, given the high investments awaiting us, we must further improve our operating result. The need to do so, and our rising indebtedness, are clear signs to us that we must take appropriate corrective action here in the form of the structural transformations that we are currently embarking on.”   

The airlines of the Lufthansa Group are responding to the pressure on their yields, by reducing their planned capacity growth for 2015 from the original 5% to around 3% in available-seat-kilometer terms.          

Business segment results 

The Passenger Airline Group achieved an operating profit of EUR 473 million (down EUR 41 million) for the January-to-September period. Lufthansa German Airlines contributed EUR 260 million (down EUR 56 million) to this, with its still-profitable European operations also playing their part. Germanwings, which will take over Lufthansa’s last remaining European point-to-point service – Düsseldorf-Zurich – on 8 January, also remains confident of posting an operating profit for 2015. Lufthansa’s year-on-year operating profit decline is attributable to falling yields and to the financial damage caused by the pilots’ strikes. To enhance profitability, the Lufthansa Group currently envisages a fleet modernization that will keep its aircraft numbers broadly at their present level in 2015. SWISS achieved a nine-month operating profit of EUR 217 million (up EUR 35 million). Austrian Airlines reported an operating loss of EUR 7 million (down EUR 26 million). The year-on-year decline here is also connected with the costs of the planned new collective labor agreement for Austrian’s ground and flying personnel, which, while entailing extra expense, will also give the company more positive longer-term prospects and perspectives. The Group’s airlines all benefited substantially from the revised groupwide depreciation policy, which added an aggregate EUR 260 million to their operating results for the first nine months of the year.   

Lufthansa Technik achieved a sizeable EUR 335 million operating profit (up EUR 3 million), LSG SkyChefs reported a profit of EUR 66 million (up EUR 3 million) and Lufthansa Systems posted a profit of EUR 21 million (up EUR 4 million). The Logistics business segment also raised its nine-month operating profit EUR 6 million to EUR 51 million, not least through the absence this year of the factors which had depressed its 2013 results.   

The first nine months in figures 

The Lufthansa Group’s total revenue for the first nine months of 2014 amounted to EUR 22.6 billion, a 0.6% decline on the same period last year. Total operating income also declined 0.6%, to EUR 24.2 billion. At the same time, total operating expenditure for the first nine months was reduced by a more substantial 1.9% to EUR 23.3 billion. Fuel costs for the period declined by EUR 269 million or 4.9% to EUR 5.2 billion. The figure includes a EUR 53 million loss from fuel price hedging activities. Fees and charges were 1.4% above their prior-year level.

The Lufthansa Group achieved an operating profit of EUR 849 million for the first nine months of 2014. The net result for the period amounted to EUR 482 million, a EUR 235 million improvement on the same period last year. Nine-month earnings per share rose from the EUR 0.54 of 2013 to EUR 1.05.

The Lufthansa Group increased its investments in modernizing and maintaining its aircraft fleet to EUR 1.9 billion in the first-nine-month period. All in all, the Group invested EUR 2.2 billion, some EUR 339 million more than in the same period last year. Cash flow from operating activities totaled EUR 2.1 billion, while free cash flow (operating cash flow less net capital expenditure) amounted to EUR 229 million. Net debt stood at EUR 2.3 billion at the end of the third-quarter period, up EUR 567 million on its level at the end of 2013. The balance sheet equity ratio amounted to 15.2%, down 5.8 percentage points from the end of last year.

The interim report for the first nine months of 2014 will be available on the www.lufthansagroup.com/investor-relations website from 07:30 CET on Thursday 30 October. The corresponding webcast for media and analysts will be broadcast on the same day from 09:30 CET via the following link: <link _top internal link in current>www.lufthansagroup.com/investor-relations 

*) Operating result adjusted for restructuring and project costs
**) Operating result plus release of provisions, divided by revenue

Deutsche Lufthansa AG
Media Relations Lufthansa Group