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Strategic realignment progressing well: Lufthansa Group increases profit for 2015 significantly

March 21, 2016 Financial No Comments Print Print Email Email

“With the Germanwings tragedy, 2015 was an emotionally very challenging year for the Lufthansa Group,” says Carsten Spohr, Chairman of the Executive Board & CEO of Deutsche Lufthansa AG. “The numerous strikes were a further burden. Nevertheless, we continued to successfully work on our Group’s future viability. And our strategic realignment is progressing well.”

“2015 was a good year in economic terms,” Spohr continues. “The doubling in the passenger airlines’ result is not only due to lower fuel costs, but also to the favorable developments in our passenger volumes and to our capacity discipline. The result also confirms that our focus on quality in both the premium and the point-to-point segment is the right approach. And the very good results from Lufthansa Technik and LSG Sky Chefs further affirm that the Lufthansa Group is on the right track.”https://www.pata.org/portfolio/pas-2016/

“For 2016 we are aiming to increase our result for the Lufthansa Group again,” Spohr adds. “We aim to enhance the profitability of our hub airlines by further modernizing their fleets and further increasing efficiency. We will only grow capacity where our cost structures are competitive. We will expand Eurowings substantially and enlarge the route network. We will foster innovations in all business areas and make travel for our customers even more pleasant and simpler through digitalization and corresponding new offers.”

In 2015, the Lufthansa Group generated revenues of EUR 32.1 billion, a 6.8 per cent increase on the previous year. The Adjusted EBIT, the leading indicator of economic success, increased by 55 per cent to EUR 1.8 billion. Hence, the result sits within the forecast range defined last October, even including some EUR 100 million earnings impact as a result of strikes in the fourth quarter. With the exception of Lufthansa Cargo, all business segments contributed to the significant earnings improvement. The Adjusted EBIT for the Group’s passenger airlines more than doubled, and the two biggest service companies, Lufthansa Technik and LSG SkyChefs, both posted double-digit percentage earnings growth.

The Lufthansa Group further improved its financial stability in 2015. The year-end equity ratio stood at 18 per cent. Liquidity increased, net indebtedness declined, free cash flow increased significantly to more than EUR 800 million and Deutsche Lufthansa AG’s ratings were confirmed. Return on capital employed (ROCE) also improved significantly to 7.7 per cent. As a result, the Lufthansa Group created value of EUR 323 million in 2015.

Earnings of the Passenger Airline Group doubled

The Lufthansa Group’s good result is mainly attributable to the significant increase in it’s passenger airlines’ earnings. The Adjusted EBIT of the Passenger Airline Group amounted to EUR 1,5 billion (compared to EUR 701 million for 2014), doubling the Adjusted EBIT margin to 6.1 per cent.

The Adjusted EBIT of Lufthansa Passenger Airlines increased by 143 per cent to EUR 970 million. Results for Eurowings (including Germanwings) are also consolidated in these numbers. Eurowings alone (which will be reported separately from 2016 onwards) achieved an Adjusted EBIT of EUR 8 million on revenues of EUR 1.9 billion – a performance which not only meets but exceeds the ambitious 2015 target of a break-even for the Group’s point-to-point business. SWISS International Air Lines achieved earnings of EUR 429 million, an increase of 54 per cent, and an EBIT margin of 9.4 per cent. Austrian Airlines also posted clearly positive earnings of EUR 52 million (compared to EUR 9 million in 2014).

Cargo weaker, service companies continue to grow

The earnings contribution of Lufthansa Cargo declined 40 per cent to EUR 74 million. The airfreight market had seen sizeable overcapacities from the beginning of the 2015 summer flight plan onwards, with a correspondingly negative impact on Lufthansa Cargo’s load factors and yields. Cargo earnings were also depressed by the strike actions at Lufthansa Passenger Airlines in the important fourth-quarter period. Lufthansa Technik and LSG SkyChefs continued their growth. Excluding gains from exchange rate movements, both companies raised their revenues by almost 10 per cent. Lufthansa Technik posted earnings of EUR 454 million, up 19.5 per cent; and LSG SkyChefs’ earnings rose 12.5 per cent to EUR 99 million.

Dividend of EUR 0.50 per share proposed

On 28 April 2016, the Supervisory Board and Executive Board of Deutsche Lufthansa AG will propose to the Annual General Meeting that a dividend of EUR 0.50 per share be distributed for the 2015 financial year. This would represent a total dividend payment of EUR 232 million, which is in line with the company’s general dividend policy. “Our dividend policy is clear and comprehensible,” says Simone Menne, Chief Officer Finance of Deutsche Lufthansa AG. “We are committed to making continuous dividend payments to our shareholders in the years ahead.”

Forecast for 2016

The Lufthansa Group expects to again slightly improve its Adjusted EBIT in 2016. The forecast does not, however, include any earnings impact from possible strikes. Once again, the Group’s passenger airlines are expected to be prime drivers of such earnings growth. With the sizeable expansion of Eurowings’ long-haul operations and intensified competition, yields are likely to decrease significantly. But cost reductions are also expected, largely due to the low oil price, but also in the form of lower unit costs at constant currency excluding fuel costs. “We will not be unduly influenced by the current low fuel costs,” emphasizes CFO Simone Menne. “They will provide a welcome tailwind for our 2016 results, too; but cost discipline remains one of our paramount tasks. We must lower the unit costs at our hub airlines. This is and remains the key to maintain our competitiveness.” One major driver in this respect will be the further enhancements to the efficiency of the aircraft fleet: this year alone, the Lufthansa Group will take delivery of 52 new, state-of-the-arts and fuel-efficient aircraft.

Lufthansa Passenger Airlines expects to post a slightly-improved Adjusted EBIT for 2016. SWISS International Air Lines expects its 2016 EBIT result to be slightly down on the previous year, owing primarily to the currency situation of the Swiss franc. Austrian Airlines again expects a significant improvement in its earnings performance. And the Eurowings Group is expecting a slightly negative result for the year, largely because of the present investments in its growth activities.

Lufthansa Cargo expects to report slightly improved earnings for 2016. With growing pricing pressure and costs for growth projects, Lufthansa Technik anticipates a significant decline in its earnings for the year owing to increasing cost pressure and costs for growth projects. And LSG SkyChefs also expects a slight decline in earnings, as a result of the expenditure required to realign its business model. The Group’s other segments are likely to post significantly better results compared to the previous year.

“We will consistently press ahead with the the further development of the Lufthansa Group throughout 2016,” says Carsten Spohr. “The Lufthansa Group stands on three strong pillars now: Europe’s leading hub airline system, the leading point-to-point airline in our home markets, and the world’s strongest aviation service companies. This all gives us more strategic options than any other aviation group. That is a strong starting point from which to benefit in a wide range of ways from the future growth of the global air transport sector. As long as we can further align our cost structures to market levels, the Lufthansa Group has great prospects in all its business segments.”

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