Lufthansa Revises Its Profit Forecast In The Wake Of Terrorist Attacks In The US

Executive Board approves comprehensive package of measures to bolster profitability
The losses incurred due to the closure of US and Canadian airspace, flight diversions, cancellations and drop in demand have made it necessary for the company to revise its profit forecast. Lufthansa can now no longer achieve its projected operating result of 700-750 million euros for 2001. This forecast was dependent on an economic upswing in the last quarter of the year, which is no longer anticipated in the wake of last week`s events. Given the ongoing uncertainty about political developments, it is not possible at present to make a reliable profit forecast. “The aviation industry has been hit badly by the consequences of the terrorist attacks. It will require immense efforts on the part of all Lufthansa staff if we are to avoid an operating loss this year,” Lufthansa CEO and chairman Jürgen Weber said. The Supervisory Board was informed of the current situation at its regular meeting today.
In order to gear the company to the new conditions facing the aviation sector, Lufthansa immediately approved a comprehensive package of drastic measures. The Executive Board and the Supervisory Board agreed at their meeting today to shelve plans to order up to 15 Airbus A380s and four Boeing 747-400 wide-body jets. “Investment planning on this scale needs a sound basis,” Weber said. In the course of the freeze on investments, all planned capital investments and current projects will undergo close scrutiny and, if necessary, be axed. There will also be further spending restrictions. In principle, Lufthansa will not recruit any new staff Group-wide. In the medium term, human resources planning will be geared to the Group`s financial development.
Urgent adjustments will also have to be made to our route network. These include discontinuing the Berlin-Washington service and cancelling one flight pair each on the Frankfurt-New York and Frankfurt-Washington routes, as has already been announced. These measures will remain in place until the end of the winter schedule in March 2002. In addition to the reduction in capacity approved in August, this will mean decommissioning four long-range aircraft.

Even before the terrorist attack in the US, Lufthansa had taken the decision to downsize its original flight offering and withdraw twelve short-range aircraft from its fleet in response to the continuing economic slowdown and rising cost pressure. Due to considerably weaker demand in the wake of the attacks, also in the European market, Luft-hansa is grounding further four aircraft. Services on the following five routes - Frankfurt- Paris/Orly, Frankfurt-Valencia, Hamburg-London/Stansted, Düsseldorf-Moscow and Dortmund-Copenhagen - will be suspended. In addition, individual frequencies will be cancelled on domestic and intra-European routes. This will take 20 of the 236 aircraft in the Lufthansa German Airlines fleet out of service. Lufthansa also reserves the right to decommission two more long-range aircraft and a further six short-range aircraft in the coming weeks.

In view of spiralling costs caused, among other things, by tighter security requirements and procedures as well as the drastic rise in insurance premiums which has already been announced, a significant increase in ticket prices and cargo rates now seems inevitable.