More Efficient Freighters To Help Lufthansa After Soft Q3 Earnings
Operating profit for Lufthansa Group dipped slightly in the third quarter from a year ago in the face of higher fuel costs and subpar performance at Austrian Airlines, Brussels Airlines and Lufthansa Cargo, which also announced plans Thursday to purchase two more Boeing 777 freighters.
Lufthansa achieved a net profit of 1.15 billion euros ($1.27 billion), a 4% increase, but adjusted earnings before interest and taxes of 1.31 billion euros, an 8% decline of 100 million euros from the third quarter of 2018, according to its Nov. 7 financial statement. It said it spent 171 million euros more for fuel in the quarter this year, primarily due to currency movements.
Total revenues increased 2% to 10.2 billion euros, but adjusted profit margin fell from 14.1% to 12.7%. The company said its North Atlantic routes boosted its performance and that unit costs were substantially reduced, particularly at network airlines Lufthansa, SWISS and Austrian.
It attributed the lower margins to a general slowdown in the global economy and continued pricing pressure, and said Eurowings will reduce capacity during the winter period in the face of modest passenger demand.
Lufthansa has implemented a turnaround strategy for Eurowings and said it is taking steps to improve earnings at other subsidiaries. Last summer it transferred Eurowings' long-haul to the network carriers.
The company said Austrian Airlines will focus solely on providing air services from and to its Vienna hub, with all decentralized bases to be closed. The aircraft fleet will also be standardized, with Bombardier Dash 8 Q400s replaced by Airbus A320s by 2021. The changes are expected to enhance productivity and generate annual cost savings of 90 million euros.
Brussels Airlines should achieve adjusted EBIT margin of 8% by 2022, Lufthansa said. The company will realign its route network, digitize functions, standardize the fleet and integrate Brussels more with the other network carriers.
Lufthansa Cargo will have its aircraft fleet both standardized and downsized. Its fleet modernization will continue with the planned purchase of two more Boeing 777 freighters, to be delivered in 2020. The airline currently owns seven 777s and is retiring 10 remaining MD-11s this year and next.
Lufthansa's cargo division said it will be able to haul the same amount of freight with significantly fewer flights because of the 777s' higher cargo capacity and range. Between the eight 777s in Lufthansa's fleet by the end of 2020 and access to four 777Fs operated by joint venture partner AeroLogic, customers will have the same freighter capacity available at the end of the transition as there was when the company operated 18 MD-11s.
The twin-engine 777 has a payload of 103 tons compared to the older MD-11's 90 tons. It also is 20% more fuel efficient, much quieter and emits less greenhouse gases than the MD-11s Lufthansa has operated for 20 years.
"We are investing in maximum reliability and significantly lower emissions," said Peter Gerber, CEO and chairman of Lufthansa Cargo, in a statement.
Lufthansa's guidance is for Cargo to have adjusted EBIT margin in 2019 of 0-2%, due to the weak market demand. Adjusted pre-tax earnings for the corporation overall is projected at 5.5-6.5%, or 2 billion euros to 2.4 billion euros.
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