Lufthansa Targets 2010 Earnings Growth on Traffic (Update3)
March 11, 2010, 12:33 PM EST(Adds closing share price in fifth paragraph.)
By Cornelius Rahn
March 11 (Bloomberg) -- Deutsche Lufthansa AG, Europe’s second-biggest airline, forecast higher operating profit this year as travel increases and the company reduces spending.
Traffic will probably recover in the second half, helping full-year revenue increase, the German carrier said today. Operating profit fell 90 percent to 130 million ($178 million) euros in 2009, leading to a net loss of 112 million euros.
“We are cautiously optimistic, with the emphasis on cautiously, less on optimistic,” Chief Financial Officer Stephan Gemkow said today at a press conference in Frankfurt.
Lufthansa aims to cut 1 billion euros from expenses through 2011 as carriers compete to restrain fares, and is seeking a 10 percent cost-savings from cabin crews and pilots, who staged a strike last month. Newly acquired Austrian Airlines and BMI will probably remain unprofitable, while fuel prices and labor disputes pose the biggest risk to targets, Lufthansa said.
Lufthansa fell 1.4 percent to 11.78 euros in Frankfurt trading, the biggest decline since Feb. 22. The Cologne-based carrier has a market value of 5.4 billion euros. Air France-KLM Group, Europe’s biggest airline, added 0.6 percent in Paris.
Revenue fell 10 percent to 22.3 billion euros last year, Lufthansa said. The airline defines operating profit as revenue minus expenses and excluding gains or costs from asset sales.
Oil Price, Labor Talks
“We have to see where the oil price is headed, how well the company manages to integrate its acquisitions and how quickly they can resolve their labor conflicts,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler.
Lufthansa said it can’t forecast whether its group passenger unit will be profitable this year. The division’s operating loss was 8 million euros, compared with a 789 million- euro profit in 2008, burdened by the main Lufthansa brand, Austrian Airlines and BMI. The Swiss International Air Lines unit and Germanwings low-cost division were profitable.
Lufthansa plans to offer “slightly higher” seat capacity in its summer flight plan as newer, larger aircraft like the superjumbo Airbus A380 replace older models. The number of weekly flights will remain almost unchanged at 12,853.
Traffic, measured as the number of passengers multiplied by the distance flown, fell 2.4 percent at the Lufthansa brand in 2009, with the decline held back by growth in the last three months of the year. February traffic slid 4.8 percent because of the pilots’ strike.
Smaller Losses
Airlines worldwide will lose a collective $2.8 billion this year, half the previous forecast, as traffic increases 5.6 percent and revenue rises 8.4 percent, the International Air Transport Association said today. Emerging markets will lead a rebound in travel in 2010, Geneva-based IATA said.
Air France-KLM posted a 245 million-euro loss before interest and taxes for the fiscal third quarter. British Airways Plc, the region’s third-biggest carrier, had a 245 million-pound ($368 million) net loss in the nine months through December.
Austrian Airlines will break even next year and become profitable in 2012 after reducing the workforce by more than 20 percent to about 6,000 employees, Gemkow said. BMI plans to cut 800 of about 4,500 jobs to generate an operating profit, he said. The restructuring plan for BMI doesn’t imply that Lufthansa will keep the unit, he added.
Chief Executive Officer Wolfgang Mayrhuber said that Lufthansa isn’t in takeover talks with Stockholm-based SAS AB.
Consolidation
“Consolidation remains an issue in the industry, but the question is who is capable of doing it,” the CEO said.
The cargo unit will have a loss in 2010, while the catering division will report “positive earnings contributions,” Lufthansa said.
A weakening euro versus the dollar means Lufthansa will have to pay 4.9 billion euros for fuel this year, up 9 percent from its forecast three months ago, Gemkow said. Last year, fuel expenditures amounted to 3.7 billion euros. The company has hedged 70 percent of fuel purchases for 2010 and 34 percent for 2011, Gemkow said.
There is “zero risk” that Lufthansa will lose its BBB- debt rating at Standard & Poor’s, the lowest investment grade, during the first half of 2010, the CFO said.
A strike by pilots last month over job guarantees and a wage increase cost the carrier as much as 50 million euros as hundreds of flights were grounded, Mayrhuber said, adding that he couldn’t say whether negotiations with the Vereinigung Cockpit pilot union will be successful. A court ban on renewed strikes expired on March 9.
--Editors: Tom Lavell, Kenneth Wong, David Risser.
To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net.
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net.
