Lufthansa’s (LH) operating profit dropped by almost 20% to €820 million ($1.07 billion) in 2011 and the airline expects to see profit shrink to a mid-three-digit million-euro figure this year. The group blamed aviation taxes and high fuel prices for the profit decline.
In addition, LH last week announced a net loss of €13 million ($17 million) for 2011 due to a larger-than-expected losses and disposal costs at British Midlands International (bmi), which it is selling to British Airways parent company International Airlines Group (IAG).
The LH Group transported 100.6 million passengers last year, up 8% over 2010.
“Some LH Group airlines could not match the difficult environment,” LH chairman and CEO Christoph Franz said during a press conference in Frankfurt. Germanwings (4U) was hit the most, and was particularly affected by Germany’s ecological tax .“Without being a member within the LH Group, Germanwings would not [have] survived the new tax,” he said, adding that 5.4% of 4U’s turnover is needed to cover the tax.
Franz said the new German and Austrian aviation tax cost the company €361 million and made up 14% of its overall costs. Fuel prices increased 25% to €5.8 billion. The LH Group’s operative margin is down 1.3% to 3.4%.
“The financial profile of our company remains stable but we need better results to secure the future of Lufthansa,” Franz said, adding that “ticket prices have to become more expensive.”
LH’s latest cost-reduction program, Climb, has created €1 billion in savings over three years. LH plans to cut costs by €1.5 billion by the end of 2014, sell loss-making bmi and inject €140 million of fresh equity into Austrian Airlines. “But €1.5 billion must be the minimum,” he said.
Within the next six years, 170 new aircraft, valued at €17 billion, will be delivered to LH. CFO Stephan Gemkow said these aircraft will have to be financed. “The aviation market [has] changed completely,” Gemkow said.
Looking forward, LH faces high costs in Germany, pressure from low-cost carriers and strong competition from Middle East carriers. “We have to rebuild our company … make tough decisions,” Franz said, adding that all areas will be affected. For the moment, he ruled out layoffs.
Gemkow expects 2012 passenger growth to be in the single-digit percent numbers. “Our growth in terms of capacity will be reduced to 2%, maybe a zero percentage rate,” he said. Fuel costs in 2012 will increase from €1.2 billion to €7.5 billion, even though 74% is hedged.
Article Source : ATW Daily News
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