Lufthansa Quarterly Profit Beats Estimates on Cost Cuts
Deutsche Lufthansa AG (LHA) said second- quarter profit jumped almost 28 percent, beating estimates, as Europe’s second-biggest airline scrapped its weakest routes and introduced a 1.5 billion-euro ($1.8 billion) efficiency program.
Operating profit rose to 361 million euros from 283 million euros a year earlier, Cologne, Germany-based Lufthansa said in a statement today. Analysts had anticipated a 226 million-euro profit, based on five estimates in a Bloomberg survey.
“These are good numbers that reflect a solid cost-driven performance and better capacity restraint,” said Stephen Furlong, an analyst at Davy Holdings in Dublin with an “outperform” rating on Lufthansa. “It’s nothing stellar though and we’re still early on in the restructuring process.”
Lufthansa has frozen capacity, terminated routes and begun a merger of administrative activities at its short-haul and Germanwings units in a drive to slash expenses. Chief Executive Officer Christoph Franz, who sold unprofitable U.K. unit BMI in the quarter, is still predicting a full-year operating profit in the “mid three-digit million euro range.” That’s before restructuring costs of 100 million euros to 200 million euros.
Lufthansa rose as much as 3.3 percent and was trading 2.7 percent higher at 10.58 euros as of 2:15 p.m. in Frankfurt. The shares had advanced 15 percent this year, valuing the company at 4.85 billion euros.
Air France-KLM Group (AF), Europe’s biggest airline, rose the most since its formation in 2004 on July 30 as the introduction of a 2 billion-euro savings plan helped halve its second-quarter loss, and has added 11 percent this year. No. 3 International Consolidated Airlines Group SA (IAG), parent of British Airways, which concluded the purchase of BMI on April 19, is up 12 percent.
Lufthansa Chief Financial Officer Simone Menne said that with the BMI sale and a revamp of Austrian Airlines there has been “big progress in two big historical problem areas.”
Lufthansa ultimately recorded a “negative sale price” of more than 100 million euros from BMI, Menne said on a conference call. A “significant discount” on the agreed 172 million-pound ($268 million) fee for the transaction would have been triggered after it failed to first divest the unprofitable BMI Regional and low-cost BMIbaby brands, based on previous statements.
At Austrian Air, 2,160 employees were transferred to lower- cost contracts at the Tyrolean brand as of July 1 as part of an overhaul aimed at saving 220 million euros this year.
Lufthansa’s second-quarter revenue gained 6.4 percent to 7.89 billion euros, while the carrier’s net income slipped 24 percent to 229 million euros. Earnings were hurt by a 22 percent jump in fuel costs to 3.56 billion euros in the first half.
“Our outlook therefore remains cautiously optimistic and is supported by continuing positive booking developments,” Menne told reporters.
During the first six months, passenger traffic -- the number of people carried times the distance flown -- rose 3.8 percent across the group as capacity increased by 2.3 percent, boosting seat occupancy 1 percentage point to 76.9 percent.
For the full year, Lufthansa plans to increase capacity 0.5 percent, and there will be a 2.5 percent reduction this winter versus a year ago, the company said on a conference call.
Cargo capacity will be cut by 4.5 percent in 2012 rather than the 2 percent announced in May, and there’s no prospect of a recovery in volumes before the fourth quarter, Menne said, adding that Lufthansa does not plan to mothball any aircraft.
Lufthansa defines its operating result as profit before interest and tax, adjusted for gains and losses related to assets and financial investments.