Deutsche Lufthansa AG (LHA) predicted lower fuel and unit costs as it shifts to bigger, more efficient planes and its savings plan takes hold, lifting the stock by the most in more than four years.
Fuel costs may reach 6.9 billion euros ($9.4 billion) this year, 200 million euros less than the estimate for 2013, the Cologne-based company said in a presentation on its website today. Unit costs, a measure for costs per passenger, will fall about 2 percent this year on efficiency measures, with a larger decline expected for 2015, Europe’s second-largest airline said.
Lufthansa is adding Boeing Co. (BA:US) 747-8i jumbo jets and Airbus Group NV (AIR) A380 double-decker planes to its fleet and is halfway through an efficiency program to achieve 2.3 billion euros in operating profit by 2015. The company is moving European routes outside its main Frankfurt and Munich hubs to low-cost unit Germanwings, cutting jobs and closing less-profitable units.
“The skies look clearer in 2014,” Neil Glynn, an analyst at Credit Suisse, said in a note to clients. “The 2014 guidance is more ambitious than expected, and Lufthansa seems set to keep hold of cost savings.” Glynn reiterated an “outperform” recommendation on the stock and raised his 12-month target price to 19.50 euros from 17.15 euros.
The stock rose as much as 8.4 percent in Frankfurt, the biggest intraday advance since August 2009. The shares were up 8.2 percent at 17.25 euros as of 1.09 p.m., giving the company a market value of 7.95 billion euros.
Traffic, the number of customers carried times the distance flown, will rise faster this year than capacity, which is set to grow about 5 percent, Lufthansa said, as the company eliminates first-class seats on some planes, allowing more space for economy seats. Pricing will be “slightly diluted” as the proportion of economy-class passengers carried rises, and Lufthansa expects the seat load factor to “slightly” rise this year.
Passenger traffic rose 2.3 percent last year, after Lufthansa increased capacity by 1 percent. Lufthansa’s load factor rose 1 percentage point to 79.8 percent.
The company is relaxing its mid-term equity ratio target to 25 percent from 30 percent because of changed accounting rules for pensions. It’s also dropping a goal for gearing as the measure loses its steering function, the company said. It has added a new target of 45 percent for the debt repayment ratio, which measures the adjusted operating cash flow to net debt including pension provisions.
Restructuring costs including severance payments to employees who will lose their jobs will be a combined 100 million euros this year and next, after 200 million euros to be booked in 2013, Lufthansa said. Lufthansa has said it will cut 3,500 administrative jobs, and it has also closed production sites in Switzerland and Ireland.
Lufthansa has hedged 70 percent of the fuel costs expected for 2014, it said in the presentation, which Chief Financial Officer Simone Menne will deliver in New York on Jan. 13.
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