Improved cost structures and lower depreciation help increase operating profit by EUR 41 million to EUR 114 million / competitive pressures on fares, devaluation of the Venezuelan bolivar and pilots’ strike depress second-quarter results / Lufthansa Group to slow capacity growth for the winter period and go on the offensive with new innovation and quality drives / profit outlook for 2014 and 2015 confirmed
Deutsche Lufthansa AG reports an operating profit of EUR 114 million for the first six months of 2014, an improvement of EUR 41 million on the EUR 73 million of the same period last year. Total revenue for the period amounted to EUR 14.2 billion, a decline of just under 2.1%. Adjusted to exclude non-recurring expenditure totalling some EUR 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 EUR 219 million, a EUR 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 EUR -79 million, a EUR 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,” says Simone Menne, Chief Officer Finance & Aviation Services of Deutsche Lufthansa AG. The goals already announced in this regard, Menne continues, 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 EUR 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 EUR 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 EUR -96 million, a EUR 32 million decline on the prior-year period. Lufthansa and Germanwings reported a first-half operating result of EUR -146 million (down EUR 55 million), while Austrian Airlines posted an operating result of EUR -44 million (down EUR 9 million). Swiss reported a first-half operating profit of EUR 92 million, a EUR 29 million improvement on the prior-year period.
Lufthansa Technik achieved a first-half operating profit of EUR 206 million, only EUR 13 million below the high level of the prior-year period. LSG SkyChefs reported a first-half operating profit of EUR 18 million, largely in line with prior-year levels, and IT Services raised its first-half operating result by EUR 6 million to EUR 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 EUR 1 billion, or EUR 1.3 billion excluding non-recurring items. And for 2015 the Group currently expects to achieve an operating profit of around EUR 2 billion.
The first half of 2014 in figures
Total revenue for the first six months of 2014 amounted to EUR 14.2 billion, a 2.1% decline on the same period last year. Total operating income also declined 2.4%, to EUR 15.2 billion. At the same time, total first-half operating expenditure was reduced by a more substantial 3.7% to EUR 15.0 billion. Fuel costs for the period declined by EUR 260 million or 7.4% to EUR 3.2 billion. The figure includes a EUR 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 EUR 114 million for the first half of 2014. The net result for the period amounted to EUR -79 million, a EUR 124 million improvement on the first six months of 2013. First-half earnings per share rose from the EUR -0.44 of 2013 to EUR -0.17.
The Lufthansa Group increased its investments in modernizing and maintaining its aircraft fleet to EUR 1.3 billion in the 2014 first-half period. All in all, the Group invested EUR 1.6 billion, some EUR 196 million more than in the same period last year. Cash flow from operating activities totalled EUR 1.7 billion, while free cash flow (operating cash flow less net capital expenditure) amounted to EUR 546 million. Net debt stood at EUR 1.6 billion, down EUR 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.