Lufthansa profits rise despite strike
German airline Lufthansa said today that profits jumped 30% in the third quarter despite a strike and higher fuel prices.
However, the company’s chief executive said that is not enough, and vowed to intensify cost-cutting.
The airline credited cost reductions it has already made for the profit, as well as better earnings from its services businesses such as repairing and catering other companies’ planes.
Chief executive Christoph Franz called the results “respectable” but warned that the company would need to be even leaner to deal with multiple challenges to its profitability.
Those include higher fuel prices as well as competition from no-frills airlines and state-backed carriers in the Middle East.
It must also pay costs imposed by governments, such as a German air traffic tax levied on every departure and the purchase of emissions trading certificates under a European Union programme aimed at reducing global warming.
“We are making progress on the costs within our control. However that is not enough to earn adequate margins,” he said, referring to profit margins, or the amount by which revenues exceed costs.
Net income rose to €642m from €494m in the same quarter last year, beating analysts’ estimates of €225m. Revenue rose 6.2% to €8.31bn. Strikes by flight attendants between August 31 and September 7 cost the company €33m.
Lufthansa has been cutting costs and said it is already seeing benefits in earnings. It has announced plans to eliminate 3,500 administrative jobs and will move many short-haul routes within Europe to its lower cost carrier, Germanwings.
The company said it is also getting stronger earnings from its maintenance, catering and information technology businesses which sell those services to other companies.
Additionally, the airline business is seasonal, with more people travelling in the second and third quarters so earnings then tend to be stronger than in the first and fourth quarters.
Mr Franz warned, however, that the company freight business was seeing a fall in demand and lower earnings, which can be a sign of an impending downturn in the overall economy.
Almost half of Europe’s 17-country eurozone members are in recession as heavily indebted governments such as Greece, Portugal, Ireland, Spain and Italy try to right their finances. Demand in Asia is slowing and the US economic recovery is fitful.
“The environment in which we have to operate is getting more and more demanding,” Mr Franz said in a statement. “And we don’t yet have the level of profitability we need to be able to make the required investments. So we will have to intensify our efforts.”
Meanwhile, low-cost carriers are cutting into Lufthansa’s business within Europe. On lucrative longer routes, Lufthansa faces competition from airlines such as Abu Dhabi’s Etihad Airways, Emirates and Qatar, which are adding seats to Europe.
