Lufthansa Narrows Loss as Efficiency Program Bears Fruit

Deutsche Lufthansa (LHA) AG narrowed its first-quarter loss as measures to cut costs and improve efficiency took hold and fuel expenses declined.

The operating loss fell to 245 million euros ($340 million) from 359 million euros a year earlier, partly helped by a profit at the maintenance subsidiary, Europe’s second-largest carrier said in a statement today. Sales fell 2.5 percent to 6.46 billion euros, while the net loss narrowed by 45 percent to 252 million euros.

“We have improved our cost structures and have taken various actions to enhance the quality of our revenues. And we will continue with our efforts to further raise efficiency,” Chief Financial Officer Simone Menne said in the statement.

Chief Executive Officer Carsten Spohr, who took over last week, must complete the company’s most ambitious efficiency program designed to lift operating profit to 2.65 billion euros by the end of next year, while drafting a strategy to fend off low-cost competitors in Europe and Middle East carriers.

The stock gained as much as 34 cents, or 1.9 percent, to 17.97 euros in Frankfurt, and traded at 17.86 euros as of 9:13 a.m. The stock has gained 15 percent this year.

Lufthansa today reiterated operating profit this year will rise to between 1.3 billion euros and 1.5 billion euros, and the company targets 2.65 billion euros next year. Analysts expect the measure at 1.41 billion euros this year, rising to 2.13 billion euros next, estimates collected by Bloomberg show.

Beating Estimates

The average analyst estimate was for an operating loss of 283.4 million euros in the first quarter, and a net loss of 333 million euros, data collected by Bloomberg show.

Unit costs at the passenger business declined by 3.7 percent, when adjusted for fuel costs and currency swings, compared with a forecast for a full-year decline of about 4 percent, Lufthansa said. Pricing as measured by average yields declined by 3.2 percent in the quarter, while dropping 1 percent when adjusted for currency swings.

Pricing in March was tougher than in January and February, Menne said, adding advance passenger bookings fell during a pilot strike at the beginning of April and Lufthansa hasn’t been able to raise them since. While Lufthansa is currently negotiating with its pilots about retirement benefits, the company can’t exclude further walkouts, the CFO said.

New Seats

Lufthansa expects capacity to rise about 4 percent this year, down from an earlier forecast of 5 percent, due to the pilots strike. The carrier today said it is reviewing a potential reduction of planned capacity for the coming winter flight plan. Capacity at its cargo unit will remain at last year’s level, compared with an earlier forecast for growth of 1 percent.

Fuel costs this year will amount to 6.7 billion euros, compared with a March forecast for 6.8 billion euros, after declining 9.4 percent to 1.52 billion euros in the first quarter. Lufthansa booked 55 million euros in non-recurring charges in the quarter, including an accelerated upgrade of the airline’s business class product, while it expects such charges to total 380 million euros this year.

Depreciation expenses dropped by 19 percent in the quarter, with 83 million euros of the decline due to the shift to a longer period of writing down the value of aircraft adopted at the beginning of this year.

Air France (AF) KLM Group on April 30 also said its first-quarter loss narrowed as its fuel bill dropped. Sales dropped 2.2 percent in a “tough” operating environment.

International Consolidated Airlines Group SA (IAG) will publish first-quarter earnings May 9.

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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