Lufthansa: Crisis in the industry burdens economic result

Group posts operating profit of 8 million euros / Program to safeguard earnings to cut costs in passenger business by one billion euros by the end of 2011

Lufthansa has posted an operating profit of eight million euros for the first six months of 2009. The Group has therefore not been able to match the good results of the previous years during the current business year. The causes for the decline in earnings lie in the economy-related weaker demand and the altered travel behaviour of the passengers. Business travellers in particular, have increasingly been buying tickets in the cheaper booking classes, leading to a significant slide in average yields during the first half of the year. “Lufthansa has made provisions and is holding its course against the competition in highly challenging conditions. This is a strong performance by all of the employees in the Group; however, we still cannot be satisfied with this result”, commented Member of the Executive Board of Deutsche Lufthansa AG and Chief Financial Officer Stephan Gemkow, speaking at the presentation of the first-half results.

Chairman of the Executive Board and Chief Executive Officer of Deutsche Lufthansa AG Wolfgang Mayrhuber commented on the economic developments in the Group’s individual business segments saying: “The figures speak for themselves. Crises ruthlessly reveal the weak points and we shall act. It is only sustainable structures that will allow our company to match its past successes and succeed against the competition in the long-term.” During the first half of 2009, the Passenger Airline Group in particular had to deal with the economy-related decline in demand and achieved significantly lower traffic revenues. The operating result was therefore below the figure for the previous year. In response to the negative trend in its core business segment, Lufthansa has launched “CLIMB 2011”, a program to safeguard the earnings of Lufthansa Passenger Airlines. The aim is the sustainable improvement of the result for Lufthansa Passenger Airlines by one billion euros by the end of 2011; thereby, the focus will lie on cutting costs. According to Gemkow, the measures of the program would be elaborated and implemented during the upcoming weeks. The Logistics business segment also showed a significant slump in revenue and loss in the operating result during the first six months of the year, and consequently intensified the measures to safeguard earnings. Among others, the measures included the reduction of cargo capacity by 30 per cent and the increase of short-time work to 25 per cent in the business segment during the second quarter. MRO was the only business segment to record an increase in revenue despite the highly challenging conditions. However, the operating result was lower than in the same period the previous year: This was mainly due to increasing price pressure, reserves for bad debt and foreign exchange losses due to the record date effect in inventory valuation. The measures to safeguard earnings were also intensified in the IT-Services business segment. Lowering the number of external staff by half, time off in lieu and reducing the administrative costs by 30 per cent are all measures aimed at counteracting the slump in revenue and the operating result. Revenue and profits also slumped in the Catering business segment. The “Performance 2009“ and “Upgradeplus” programs aim to secure an operating profit for the current business year and ensure the set up of a sustainably competitive company structure.

“Lufthansa is a strong company and Lufthansa and SWISS belong to the best airlines in the world. We are fully determined to remain the best – also in a time of crisis and in significantly changing competition. We are acting now in order to ensure success”, stressed Stephan Gemkow. He went on to add that the Group was continuing to operate in a challenging environment that could also lead to expect a significant decline in revenue for the full year 2009. Despite these challenging conditions and the burdening effect of the new airlines on the result of the Group, its activities had continued to target an operating profit for the current business year. Gemkow however pointed out that achieving this target would require the timely implementation of the planned additional measures to safeguard earnings and would be accompanied by major risks, particularly in the form of the further development of demand and fuel prices.

First-half figures 2009

During the first six months of 2009, the Lufthansa Group generated revenues totalling 10.2 billion euros, 15.2 per cent less than the year before. The traffic revenue fell by 19.3 per cent to 7.8 billion euros. This was mainly due to the decline in passenger and freight figures, as well as lower average yields per passenger. Overall, the operating income of the Group decreased by 10.1 per cent to 11.6 billion euros during the reporting period.

Operating expenses decreased by 4.8 per cent to 11.6 billion euros during the first half of 2009. This was mainly due to the 897 million euros lower fuel costs; equivalent to a year-on-year reduction of 36.6 per cent, which was both price and volume related. The fees and charges were 2.5 per cent below the previous year’s figure.

The Group’s operating result during the first six months of the year was eight million euros, which was 669 million euros less than during the same period last year. The decline is mainly the result of the negative developments in the Group’s Passenger Airline Group and Logistics business segments. The company’s net profit is -216 million euros; this time last year it was at 381 million euros.

Lufthansa’s capital expenditure during the reporting period totalled 1.2 billion euros, of which 898 million euros were spent on the expansion and modernization of the fleet. 77 million euros were gained from the disposal of the remaining Condor shares and the repayment of related loans. Operating cash flow totalled one billion euros. At the close of the first half, the Group’s net indebtedness stood at 396 million euros.