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Lufthansa stands by profit forecast for 2001

Travel News Asia Date: 22 August 2001

First-half revenue up sharply by 13.7 per cent

Operating profit totals 105 million euros


In a difficult market environment, Lufthansa can look back on a successful first half in 2001. With revenues up at a double-digit rate and operating profit of 105 million euros, the Aviation Group still ranks upfront in the air traffic industry. The Group stands by its targeted full-year operating profit of between 700 and 750 million euros provided the underlying economic conditions pick up again in the fourth quarter of 2001 and yields remain stable. That will be a crucial factor especially in business development at Lufthansa Cargo.

The weakening global economy, which has had an increasing impact in Europe since May, is adversely affecting the entire aviation industry. However, the Lufthansa Group has already initiated a package of measures in order to maintain and strengthen its competitiveness and profitability. Lufthansa Cargo, for one, has withdrawn capacities equivalent to two Boeing 747 freighters from the market. In the passenger business, Lufthansa is cutting back on capacity growth plans on intercontinental routes, discontinuing unprofitable services and deploying smaller aircraft on specific North Atlantic routes. It is additionally prioritising cost management and reappraising group-wide activities in its new D-Check programme designed to bolster the Aviation Groups earning potential in the future.

Two-digit revenue growth

Lufthansa returned higher revenues in all its business areas. Total first-half revenues rose by 13.7 per cent to 7.8 billion euros. Improved yields generated a marked increase in traffic earnings despite the worldwide economic downturn. They climbed by 10.7 per cent to 6.2 billion euros. Other operating revenue soared by 27.8 per cent, owing largely to growth in the catering business with the consolidation in June of the Sky Chefs group. Lufthansa Technik put in a gratifying performance in the MRO sector. Other operating revenue totalled 388 million euros. The previous years figure of 952 million euros benefited from book profits of 390 million euros, principally from the sale of an equity stake in Amadeus Global Travel Distribution.

The weakening world economy and the pilots strike adversely affected traffic performance in the first six months. The Group nevertheless raised passenger numbers by 2.4 per cent to 23.1 million. The seat load factor remained at the high level of 71.8 per cent despite an inability to sell all the 6.1 per cent increase in available capacity in the marketplace. Lufthansa Cargo returned weaker figures: sales dropped by 2.8 per cent, the cargo load factor slipped to 62 per cent.

Higher costs for fuel and personnel

Successful hedging helped contain the Groups fuel expenses. They still increased, though, by 31.4 per cent or 196 million euros on the year-earlier figure. That increase stemmed from traffic growth, higher fuel prices and the strong dollar. Had it not been for extensive price hedging measures, the fuel bill would have cost the Group another 82 million euros. Staff expenses rose over-proportionally by 14.4 per cent to 1.9 billion euros as a result of pay increases for ground staff and flight crews as well as the inclusion of Sky Chefs in the group of consolidated companies. Of the 125 million euros in expenses incurred by the pay settlement for cockpit crews, 85 million euros have been charged to the interim accounts. These also include the immediate losses of 75 million euros caused by the stoppage. Overall, operating expenditure was up by 11.8 per cent to 8.0 billion euros.

Pre-tax profit depressed by financial result

The difficult economic environment, increased costs and the exceptional impediments posed by the pilots strike as well as infrastructure bottlenecks on the ground and in the air gravely impacted business developments in the first-half term. Nonetheless, Lufthansa posted an operating profit of 105 million euros compared with the year-earlier 349 million euros. Negative income contributions from DHL and Thomas Cook reduced the financial result: pre-tax profit fell accordingly to 24 million euros. The Groups net result after tax works out at -43 million euros.

Lufthansa has further expanded its business areas and more than doubled capital expenditure. Half of the total 2.6 billion euros in expenditure is attributable to the acquisition of the remaining stakes in Sky Chefs.

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