Lufthansa boss cautious as he delivers best results
Airline warns earnings likely to slip this year as higher fuel costs weigh on group
German airline group Lufthansa delivered its best results in its history on Thursday, but then warned earnings are likely to slip this year as higher fuel costs offset planned cost reductions.The Cologne-based group, whose brands include Austrian Airlines, Swiss, Brussels Airlines and Eurowings, is projecting savings of 1-2 per cent in unit costs excluding fuel and currency effects this year.
But this would not make up for the projected rise in fuel costs by €700m to about €5.9bn.In 2017, net profits climbed a third to €2.36bn as revenue rose 12.4 per cent to €35.6bn. Adjusted operating profits shot up 70 per cent to €2.97bn, beating forecasts of €2.8bn. UBS analysts said the 2017 numbers were strong, which helped Lufthansa’s shares rise 2 per cent by lunchtime in Germany, but an uncertain outlook held back further gains.
Last year shares in the company soared 150 per cent as the group cut costs, modernised its fleet and then bulked up capacity by purchasing more than half of insolvent rival Air Berlin.
The turnround, which gathered momentum in the second half of 2016, followed years of labour battles with pilots and stiff competition from Gulf carriers on long-distance flights and low-cost carriers for short-haul trips.
Chief executive Carsten Spohr delivered a cautious outlook, despite the strong results, and laid out a strategy to “unlock” opportunities.Mr Spohr, whose contract was extended by five years on Wednesday, said he was proud of the results but reiterated how “essential” it was for costs to come down another 1 per cent to 2 per cent each year, without sacrificing quality. “We are lowering our costs where this does not affect the customer, and are simultaneously further investing in our product and service quality,” he said. “This is the only way to sustainably increase our profitability.”
He said Eurowings, the group’s budget carrier, has prioritised top line growth over efficiency in the past three years because it was in danger of losing market share in its home market.
But now, Eurowings is entering a new phase following fast growth and the addition of new aircraft.
“There is no reason not to come to margin levels of our competitors in England or other parts of Europe,” he said. “When we said we wanted Eurowings to be number three in Europe, people laughed at us . . . Nobody is laughing now.
”The group’s point-to-point airlines, comprising Eurowings and Brussels Airlines, recorded operating margins of 2.3 per cent last year, a 7.3 percentage point improvement from a year earlier. The group has a goal for Eurowings to have 210 aircraft by next year, versus about 90 in 2016.
Margins for the whole group rose 2.9 percentage points last year to 8.4 per cent, helped by efforts to slash spending. Unit costs excluding fuel and currency effects fell 0.4 per cent in the year.Reductions would have been more significant were it not for compensation paid to customers for flight cancellations at Air Berlin, said finance chief Ulrik Svensson.
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Airline warns earnings likely to slip this year as higher fuel costs weigh on group
German airline group Lufthansa delivered its best results in its history on Thursday, but then warned earnings are likely to slip this year as higher fuel costs offset planned cost reductions.The Cologne-based group, whose brands include Austrian Airlines, Swiss, Brussels Airlines and Eurowings, is projecting savings of 1-2 per cent in unit costs excluding fuel and currency effects this year.
But this would not make up for the projected rise in fuel costs by €700m to about €5.9bn.In 2017, net profits climbed a third to €2.36bn as revenue rose 12.4 per cent to €35.6bn. Adjusted operating profits shot up 70 per cent to €2.97bn, beating forecasts of €2.8bn. UBS analysts said the 2017 numbers were strong, which helped Lufthansa’s shares rise 2 per cent by lunchtime in Germany, but an uncertain outlook held back further gains.
Last year shares in the company soared 150 per cent as the group cut costs, modernised its fleet and then bulked up capacity by purchasing more than half of insolvent rival Air Berlin.
The turnround, which gathered momentum in the second half of 2016, followed years of labour battles with pilots and stiff competition from Gulf carriers on long-distance flights and low-cost carriers for short-haul trips.
Chief executive Carsten Spohr delivered a cautious outlook, despite the strong results, and laid out a strategy to “unlock” opportunities.Mr Spohr, whose contract was extended by five years on Wednesday, said he was proud of the results but reiterated how “essential” it was for costs to come down another 1 per cent to 2 per cent each year, without sacrificing quality. “We are lowering our costs where this does not affect the customer, and are simultaneously further investing in our product and service quality,” he said. “This is the only way to sustainably increase our profitability.”
He said Eurowings, the group’s budget carrier, has prioritised top line growth over efficiency in the past three years because it was in danger of losing market share in its home market.
But now, Eurowings is entering a new phase following fast growth and the addition of new aircraft.
“There is no reason not to come to margin levels of our competitors in England or other parts of Europe,” he said. “When we said we wanted Eurowings to be number three in Europe, people laughed at us . . . Nobody is laughing now.
”The group’s point-to-point airlines, comprising Eurowings and Brussels Airlines, recorded operating margins of 2.3 per cent last year, a 7.3 percentage point improvement from a year earlier. The group has a goal for Eurowings to have 210 aircraft by next year, versus about 90 in 2016.
Margins for the whole group rose 2.9 percentage points last year to 8.4 per cent, helped by efforts to slash spending. Unit costs excluding fuel and currency effects fell 0.4 per cent in the year.Reductions would have been more significant were it not for compensation paid to customers for flight cancellations at Air Berlin, said finance chief Ulrik Svensson.
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