Lufthansa On Course, But Still a Long Way to Go

Lufthansa has stayed on course and again demonstrated its stability in the turbulent year 2003. “Thanks to our flexibility we were able to progressively recover from a record loss in the first quarter to post an operating profit of Euro 36m for the full year,” Lufthansa’s Chairman of the Executive Board and CEO Wolfgang Mayrhuber (pictured) said today on presenting the company’s annual financial statements. “The weak macroeconomic momentum, the war in Iraq and SARS squeezed demand, further increased price pressures and severely depressed our result. We nonetheless managed to half our indebtedness.” Mayrhuber expressed optimism: “The goal is clear, the strategy is correct, we are on course, but there is still a long way to go before we reach our destination.” “We have retrenched and restructured, developed innovations for the customer and invested in the future. Lufthansa has mastered the crisis,” Wolfgang Mayrhuber said. “We have won awards, we have gained new customers and strategic business partners, we have attained very positive customer ratings and we have again outperformed the German stock index DAX in what was a crisis-ridden year. We are proud of these achievements.” The Lufthansa CEO added, however, that he was naturally not satisfied with the result for the year 2003. “In order to generate profitable growth and offer our staff secure jobs and future prospects, we have to lastingly improve our efficiency and profitability. That is also something which all of our shareholders expect.”

The segments Passenger Business, Logistics, MRO and IT Services posted positive segment results. But LSG Sky Chefs and Thomas Cook were hit particularly hard by last year’s crises. “Thomas Cook’s priorities must be to minimise the losses, put in place a competitive cost structure and return to profitability,” Mayrhuber said. The LSG group had faced massive slumps, especially in its main market of the USA. He cautioned that it would be wrong, however, to focus exclusively on the current performance: in the past the company had achieved good returns over many years. “And we want to resume that track-record. LSG is currently undertaking a mammoth cost-cutting programme, the entire organisation is being redimensioned,” the Lufthansa Chairman informed his audience. “In future we shall concentrate on the business we do best: airline catering. All other operations will be subjected to a strategic review. In the case of Chef Solutions talks are in full swing with potential buyers.”

Lufthansa has critically re-examined the book values of its goodwill and tangible fixed assets, cleaned up its consolidated balance sheet and made unscheduled amortisation and depreciation charges totalling 783m Euro, largely in respect of the LSG Sky Chefs group. This leaves Lufthansa with a bottom-line result of -984m Euro. This means that Lufthansa cannot pay a dividend for 2003.

However, neither this result nor the serious situation of LSG Sky Chefs and Thomas Cook warrants calling the strategy into question. “The aviation group is alive,” Wolfgang Mayrhuber said, “and where there is life there are also changes.” The aviation group will continue to orient itself to economic and strategic criteria, the Lufthansa Chairman commented. “That is the successful consequence of this strategy.” It was only the Group’s reorganisation into business segments that had brought transparency and established market relationships between internal customers and suppliers. That had widened the action radius, encouraged entrepreneurial thinking and behaviour and enabled the individual companies to become global market leaders. Consequently, the aviation group’s individual business segments can now be given a market value and are open to capital participations. In future Lufthansa’s portfolio management strategy will also focus more on the respective core business. “We shall continue to manage our equity portfolio actively and more selectively and to strengthen the individual core competencies in our business segments,” Mayrhuber announced. “Our aviation group is stable but not static.”

According to Mayrhuber, success crucially requires flexibility in managing changes: “We need to respond quickly, innovate, keep close to the customer and simultaneously lower costs in order to be successful.” The Chairman promised that Lufthansa will continue to offer its customers a wide product portfolio ranging from the Lufthansa First Class cabin, the Executive Jet service, Lufthansa Classic on the European continental routes, Lufthansa Regional, charter services up to “bargain offers”. “Profitable growth occurs through product differentiation. Quality and innovation, safety and reliability remain hallmarks of Lufthansa and will be the guarantor of our Group’s success in future, too,” the Lufthansa CEO summed up.

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Equally forward-looking elements for all the Group’s companies are strategic alliances and partnerships. Lufthansa Passenger Airlines is well positioned with the Star Alliance. On 1 April Lufthansa will increase its stake in Eurowings from 24.9 per cent to 49 per cent, thus affirming the airline’s important role in Lufthansa’s regional network.

Lufthansa began the year 2004 in optimistic mood. The Group will resolutely implement its announced action programme. “We are right on schedule.” Of the total targeted savings of 1.2bn Euro, around 430m Euro will be saved on a permanent basis in the course of this year. The Group has already achieved 234m Euro of the savings. “With the streamlining of our balance sheet, the successful launch of our action programme and our strategy of product differentiation and continuous quality enhancement, we have charted the course for Lufthansa’s future. We are confident that in 2004 we shall be to post a significantly better operating result as well as a positive net result,” Wolfgang Mayrhuber prophesised.
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