Lufthansa Quarterly Profit Doubles on Traffic, Yields
July 29, 2010, 12:14 PM EDTBy Cornelius Rahn
(Updates with closing share price in fifth paragraph.)
July 29 (Bloomberg) -- Deutsche Lufthansa AG, Europe’s second-biggest airline, more than doubled quarterly profit, topping analysts’ estimates, as rising travel demand boosted a recovery in ticket prices and as freight transport surged.
Net income was 194 million euros ($253 million), compared with 89 million euros a year earlier, the Cologne, Germany-based carrier said on its website today. The company was predicted to earn 111 million euros, according to the average estimate of nine analysts compiled by Bloomberg. Sales rose 33 percent to 6.9 billion euros.
While international air traffic rebounded 12 percent in June, Europe is lagging behind the global recovery, figures from the International Air Transport Association showed. Bigger rival Air France-KLM Group reported its first quarterly net income since 2008 this week, and predicted it will break even on an operating level in 2010, excluding the costs of flight disruptions caused by an Icelandic volcanic eruption.
“The market is demanding very large beats in order to support share prices,” said Andrew Lobbenberg, an analyst at RBS in London who has a “buy” recommendation on Lufthansa’s stock. “Air France had an enormous beat relative to consensus and the stock went up 1 percent. Today Lufthansa have delivered numbers in line with consensus, so that seems consistent with the treatment Air France had.”
Shares Fall
Lufthansa fell the most in a month, dropping 4.5 percent to 12.22 euros at the close of market at 5.30 p.m. in Frankfurt. The stock has gained 29 percent in the past 12 months, valuing the carrier at 5.6 billion euros.
The company said it’s “even more confident” that it will reach a target for a full-year operating profit that exceeds last year’s 130 million euros, adding that the figure should be “in line with current market expectations.” Revenue will increase from 2009, the carrier said, without being specific.
Ticket prices began to rebound in the first half, with passenger travel rising faster than capacity, Chief Financial Officer Stephan Gemkow said in a conference call.
Yields, a measure of average ticket prices, rose 13 on transatlantic routes and 12 percent on flights to Asia-Pacific destinations in the first six months, returning almost to pre- crisis levels, Gemkow said. They grew 0.6 percent for African and Middle Eastern destinations and fell 2.8 percent on European routes, he added.
A return of demand for premium travel in Europe is “doubtful,” he said.
Passenger Unit
The Lufthansa-brand passenger unit flew 27.2 million passengers in the first six months, an increase of 1.8 percent from a year earlier, boosted by demand for connections to Africa and the Middle East. Passengers at the Swiss International Air Lines unit gained 2 percent.
The passenger numbers take into account the effects of pilot strikes, the cold winter and the ash cloud that caused a week-long closure of the European airspace in April.
Lufthansa’s cargo unit posted operating profit of 109 million euros in the second quarter, compared with a 62 million- euro loss in the same period a year earlier. The company ended a reduced work-hours program and is speeding up a return of parked freighters to satisfy demand.
Wage Accord
The carrier is seeking to slash costs by 1 billion euros by 2012 by and is “on track” to achieve that goal, Gemkow said today. The measures include reducing administrative jobs by 20 percent and negotiating lower wage costs with staff.
Lufthansa reached a wage agreement with the Vereinigung Cockpit pilot union last month, averting further strikes which grounded hundreds of flights in February.
Yet six rounds of negotiations with cabin crews on job conditions and wages haven’t yielded an accord, and the UFO union said July 26 that it would go on strike if no “substantial progress” is made by the end of August.
Lufthansa said today the restructuring at Austrian Airlines and BMI will affect 2010 earnings “negatively.” Austrian aims to return to profit next year, while BMI would do so in 2012 at the latest, Gemkow said.
The airline reiterated its fuel-cost projection of 5.2 billion euros for the year, compared with 3.7 billion euros in 2009. Lufthansa’s hedging contracts mean it will profit if crude-oil prices exceed $78 a barrel, according to the CFO.
--With assistance from Alex Webb in Frankfurt. Editors: Kenneth Wong, Chad Thomas
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 in Berlin at kwong11@bloomberg.net
