Bloomberg News

Lufthansa Loss Widens on Slowing European Economy, Fuel

May 02, 2012

An aircraft operated by Deutsche Lufthansa AG, left, takes off alongside a tailfin displaying the company's logo during a strike at Frankfurt airport. Photographer: Hannelore Foerster/Bloomberg

An aircraft operated by Deutsche Lufthansa AG, left, takes off alongside a tailfin displaying the company's logo during a strike at Frankfurt airport. Photographer: Hannelore Foerster/Bloomberg

Deutsche Lufthansa AG (LHA) said its first- quarter loss widened as European economies slowed and the cost of fuel and restructuring measures weighed on earnings.

Lufthansa had an operating loss of 381 million euros ($501 million), versus a 169 million-euro deficit a year earlier, the Cologne, Germany-based company said in a statement. Analysts had predicted a 297 million-euro loss, according to six estimates.

Europe’s second-biggest airline has frozen capacity growth as it seeks to implement a 1.5 billion-euro savings plan by 2014, consolidating administrative operations between its short- haul unit and Germanwings low-cost brand. Sales rose 5.6 percent to 6.6 billion euros in the first three months, it said today.

“The additional revenue could not, however, offset the cost increases, in particular for fuel,” Lufthansa said in the statement, reiterating a forecast for full-year operating profit in the “mid three-digit million euro range,” excluding costs from the restructuring which may have “an adverse effect.”

Lufthansa has begun a profit-improvement plan known as SCORE, from Synergies, Costs, Organization, Revenues, Execution, after completing a package that saved 1 billion euros through 2011. Fuel costs are continuing to clip airline earnings after the cost of Brent crude increased 5.8 percent this year to $117.94 a barrel on London’s ICE Futures Europe exchange.

‘Odds and Ends’

Subsidiaries Austrian Airlines and U.K.-based BMI have also weighed on Lufthansa’s earnings, as has a ban on flights at its Frankfurt hub between 11 p.m. and 5 a.m., upheld in April by a court in Leipzig.

“It’s below where I was thinking,” said Gerald Khoo, an analyst at Espirito Santo in London with a “neutral” rating on Lufthansa. “There were odds and ends going on in the quarter specific to Lufthansa, such as Frankfurt’s night-flight ban. A few extra million in the mix makes it look that bit worse.”

Lufthansa completed the sale of BMI to British Airways parent International Consolidated Airlines Group SA (IAG) on April 20, while Austrian Airlines said yesterday it would transfer flight operations to regional arm Tyrolean Airways to help stem losses.

Competitor IAG’s Iberia unit plans to slash total pilot pay by 62 million euros as it seeks to improve productivity by 25 percent and match BA. European No. 1 Air France-KLM Group (AF) is also seeking more than 2 billion euros in annual savings.

Lufthansa shares had gained 7.8 percent this year as of the close in Frankfurt, valuing the company at 4.54 billion euros.

To contact the reporter on this story: Alex Webb in Frankfurt at awebb25@bloomberg.net

To contact the editor responsible for this story: Chad Thomas in Berlin at cthomas16@bloomberg.net


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