Despite the dramatic hike in the oil price, the Lufthansa Group earned an operating profit of Euro 218 million in the third quarter of 2004…
Despite the dramatic hike in the oil price, the Lufthansa Group earned an operating profit of Euro 218 million in the third quarter of 2004. The cumulative operating result for the first nine months improved by Euro 405 million to Euro 251 million. We exploited the market opportunities, successfully sold our extra capacity and enhanced the quality of our products, Wolfgang Mayrhuber, Lufthansa`s Chairman of the Executive Board and CEO, said on presenting the Group`s figures up to the end of September. A keen ability to adapt and adjust, a high innovative capability and a sound financial base are key strengths of our Group.
The Group`s strategy is focused on profitable growth and the systematic ongoing development of the Lufthansa passenger airlines as a full line provider. The passenger traffic is the core business of our Aviation Group, Mr. Mayrhuber explained. Growth in the passenger business segment will fuel the expansion of the Group as a whole. Lufthansa carefully considers both the strategies of the individual business segments and their respective importance for the Group`s passenger business. In this vein Lufthansa will continue to pursue an active portfolio management policy and concentrate on its core competencies.
For 2004 as a whole the Executive Board remains confident of posting an operating profit of around Euro 300 million. Mr Mayrhuber pointed out, however, that such a result will not suffice in the long term: The current improved figures cannot hide the fact that we need significantly better operating results in future in order to ensure our company`s viability for the next generation. A key contribution to this is to come from the action plan, which envisages earnings improvements of Euro 1.2 billion up to 2006. Of the sum of Euro 430 million in savings earmarked for this year, Euro 354 million has already been realised.
In the personnel field, however, only half of this year`s target of Euro 105 million will be achieved. We are engaged in tough negotiations with the social partners. But the readiness for change is apparent among our employees. Wolfgang Mayrhuber outlined two approaches for those negotiating issues that are still unresolved: More work for the same pay and New recruits at market prices. He added that all the divisions throughout the company must make their contribution to the action plan. It is a question of securing jobs in our company, creating new perspectives and boosting our competitiveness. My preference is clear: I would like to secure our successful course for the existing workforce and create additional employment in our domestic German market.
The task of restructuring Thomas Cook and LSG is making headway. Mr. Mayrhuber sees some initial advances in the Leisure Travel segment: Thomas Cook is on the right path. The trend is clearly pointing upwards. By contrast, Lufthansa`s Chairman and CEO is not yet satisfied with the progress made towards turning round the Catering segment. He said that the priority task remains the restructuring of LSG, especially in the United States. We have reinforced the leadership team with two highly experienced Lufthansa managers. This should ensure both a successful and speedy restructuring process.
Lufthansa has positively pursued its airline alliance strategy and has agreed new collaborative ventures with South African Airways, TAP Air Portugal, Air India and other partners. The guiding principle for us is always providing extra value for our customers. Quality, safety and reliability, an extended product family – from no frills to top-flight exclusivity – this is our response to changing customer demand, Mr. Mayrhuber told his audience. With the further evolution and refinement of its premium product, Lufthansa is setting new industry-wide standards. As from December all First Class passengers in Frankfurt will be able to enjoy redesigned lounges and their own dedicated terminal offering a direct transfer to the aircraft.
The first nine months of 2004 in figures
Between January and September the Lufthansa Group generated Euro 12.7 billion of revenue; this was 7.7 per cent more than in the same period last year. The Group`s airlines expanded available capacity in line with the growing demand and also increased their load factors significantly. Traffic revenue consequently rose by 13 per cent to Euro 9.7 billion.
The cost-cutting measures that remain in place in all the business segments continued to make an impact in the first nine months of 2004. Despite the marked rise in revenue, operating costs grew disproportionately slowly. They went up by 1.4 per cent to Euro 13.1 billion. Staff costs totalled Euro 3.5 billion as against Euro 3.4 billion at the same stage last year. The Group spent Euro 1.3 billion on fuel, which was a year-on-year increase of 30 per cent. However, 15.1 per cent was due to extra consumption related to the selective expansion of production. Lufthansa`s far-sighted hedging strategy once again paid off. Without the extensive price hedging measures the Group`s fuel bill in the first nine months would have been Euro 159 million higher.
The operating result for the first nine months of 2004 amounts to Euro 251 million. During the corresponding period of 2003 the Group had shown a running loss of Euro 154 million. The net result for the period showed a similar positive trend: it jumped by Euro 573 million to Euro 164 million. Capital expenditure amounted to Euro 1.3 billion. Euro 987 million of this was spent on modernising and extending the fleet. The cash flow from operating activities grew by 30.1 per cent to Euro 1.4 billion. This means that capital spending was fully funded from the cash flow. The Group`s liquid funds exceeded its financial debts by Euro 791 million. This compares with net debt of Euro 591 million at the end of 2003.
click image to enlarge
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
