Lufthansa’s airlines post strong 1st half results but fuel costs rise

posted on 31st July 2018 by Justin Burns
Lufthansa's airlines post strong 1st half results but fuel costs rise

The Lufthansa Group’s net income was up a touch by 0.7 per cent to €677 million in the first half of 2018 ending 30 June as all its airlines grew – but figures were affected by rising fuel prices.

The Group is made up of Lufthansa, Brussels Airlines, SWISS, Eurowings and Austrian Airlines, and the airlines’ performance was the key driver of results.

Some 67 million passengers were carried across the different airlines, a new record for the period. Capacity, volumes sold and seat load factor were also all at new record highs.

Adjusted earnings before interest and taxes (EBIT) which the airline group said the key profit metric – was roughly at its prior-year level at €1,008 million.

Total revenues fell by 0.1 per cent to €16.9 billion, but excluding the impact of the first-time application of the IFRS 15 accounting standard, revenues increased 5.2 per cent Traffic revenue were down one per cent to €13.2 billion, which, excluding the first-time impact of IFRS 15, represents an increase of seven per cent.

First half-year fuel costs rose by €216 million to €2.8 billion. The increase is attributable to both the higher volumes and a higher fuel price.

The Lufthansa Group also said an increase in the costs incurred through delays and flight cancellations had a negative impact on first half-year earnings.

The main causes were strike action and the infrastructural inadequacies of Europe’s aviation systems, such as the current capacity problems at the continent’s national air navigation services providers. Extreme weather (such as storms) also adversely affected flight operations far more than usual in the first half-year period.

However, Group earnings for the period were also depressed by the expense of integrating the aircraft formerly operated by Air Berlin into the Eurowings fleet – a process which it said is “unprecedented” in its scope within the European airline industry and took longer than originally envisaged.

Chief financial officer, Ulrik Svensson said: “The prime features of Lufthansa Group’s development in the first half of 2018 were strong growth and a simultaneous improvement in our unit revenues. Achieving both simultaneously is a significant success.

“At our Network Airlines, we were able to more than offset the added burden imposed by higher fuel costs through structural cost reductions and improved results by 26 per cent. Without the integration costs at Eurowings, which we willingly accepted to further strengthen our market position in Europe, the Group’s result would have grown.”

The Lufthansa Group’s full-year outlook for 2018 is that capacity will increase by around eight per cent – slightly less than the earlier forecast of 8.5 per cent growth. Fuel costs are expected to be some €850 million higher than in 2017.

Lufthansa Group now expects a slight increase of unit revenues for the full year. The reduction in unit costs (excluding currency factors and fuel) is expected to amount to around one per cent – negatively affected by higher-than-planned integration costs at Eurowings.

Svensson added: “With continuing strong demand, we are confident that, despite a challenging prior-year basis for comparison, we will be able to report solid revenue trends for the second half of 2018, too.

“We will also continue to benefit from the substantial improvements in the cost efficiency of our Network Airlines. With Eurowings, following its sizeable capacity increase, our prime objective is to return to profitability next year. We will also create the structures to raise Eurowings’ profitability to the levels of its prime competitors over the next three to four years.”