Lufthansa's Profit Fell 37% In the First Half of the Year
May 09, 2011
FRANKFURT -- German national flag carrier Deutsche Lufthansa AG said Monday group pretax profit fell 37% in the first half of 2011, though the airline said cost- and capacity-cutting measures should allow it to make up that decline in the final six months of the year. The company said pretax profit totaled 119 million marks ($80.5 million), down 70 million marks from the same year-earlier period. World-wide group consolidated revenue was up 6.6%, however, to 9.8 billion marks. Lufthansa projected a 5% sales gain for the full year. In 2010, the company had group sales of 19.9 billion marks. ``Given a stable currency background and an increase in turnover of approximately 5% in the whole of 2011, the executive board anticipates that a result comparable to that of 2010 will be reached with the measures initiated,'' Lufthansa said. The company said it will continue cutting costs aggressively under its so-called ``Program 15'' initiative. It said it will place a high priority on lowering its cost base permanently. As part of this plan, the company also is reducing its spending budget for the rest of this year by 190 million marks. Moreover, three aircraft flying short- and medium-haul routes and two long-haul planes are being taken out of service to reduce excess capacity, Lufthansa said. ``Staffing levels are also to be adjusted accordingly,'' the company added. In all of 2010, Lufthansa had group pretax profit of 756.3 million marks. The company's first-half earnings figure is an upward revision of a preliminary estimate of 100 million marks that Lufthansa had made on March 15, 2011 that time, the company also had said it planned extra savings measures that would allow it to match 2010 earnings in 2011. In its more detailed report on the first half published Monday, the company acknowledged that its financial performance thus far in 2011 has fallen far short of previous expectations, particularly in the German market. ``The main reasons for the decline in the German market are the effects of the fire at Duesseldorf Airport and above all the market distortion caused by price dumping and an oversupply of capacity,'' Lufthansa said. In the first half, the company said its airlines flew 19.7 million passengers, a rise of just 0.4% from the opening half a year earlier. They hauled 2.8% more freight and mail at 808,600 metric tons, the company added. Expressed in ton kilometers, a standard measure of business activity for European airlines, the company's airline activities few 1.8% more passengers, freight and mail. ``Lufthansa had reckoned with a stronger volume growth,'' the company said, adding it had increased capacity by 4.3% in the latest reporting period on that earlier assumption. In the meantime, capacity has been trimmed back because of the shortfall in demand. On balance, Lufthansa's overall group capacity utilization, or the ``load factor,'' declined by 1.6 percentage points from a year earlier to 68.3%. For passenger haulage alone, the load factor was down 1.8 points to 67.6%, the company noted. Despite the drop in haulage volume, the company's revenue generated by airline traffic rose 4.8% in the first half from a year earlier to 8.8 billion marks. But profitability was mixed. ``The average yield on freight traffic declined slightly, but the decrease could be more than offset by an increase in the yield of 5% in passenger business,'' Lufthansa said. It explained that the improvement on the passenger side was due in part to improvements in products and punctuality of its flights. Besides the Deutsche Lufthansa parent airline, the company operates the Condor Flugdienst charter carrier as well as Lufthansa CityLine. The company said those airline businesses plus the Lufthansa Technik operations together were able to boost revenues by 600 million marks in the first half. The Lufthansa Cargo operations, however, posted a drop in turnover due to the weak economy and tough markets. The company said group operating profit gained by 4.1% to an unspecified level. Meanwhile, rising costs also contributed to the decline in Lufthansa's group pretax profit in the first half from a year earlier. Costs were 5.3% higher, due in part to unused capacity. ``Productivity and unit costs developed unfavorably as the increase in transport volume was weaker than planned,'' Lufthansa said, adding, ``the trend in costs in the first half is mainly marked by a disproportionate increase in fuel and personnel expenses.'' The company added that overall spending on materials rose 8% to over 4.3 billion marks, driven mainly by higher charges and fees, combined with the rises in fuel costs. And personnel spending was swollen by costs associated with hiring more staff in anticipation of airline demand that didn't materialize. As of March 12, 2011 had 58,852 employees world-wide on a group basis, up 2.5%. And buoyed by incidental staff expenses, overall spending on personnel was up 7.9% in the first half from a year earlier.
