Current air traffic crisis precludes any forecast of full-year results
“Business at the Lufthansa Group up to September 11 was fully in line with our expectations. Our original forecast projecting an operating result of between 700 and 750 million euros in the business year in 2001 was realistic,” said Lufthansa Chairman and CEO Jürgen Weber at today`s presentation of the Group`s nine-month figures.
“However, September 11 has changed the world. It has changed international air traffic more profoundly than any crisis before. What is urgently needed now is consolidation in the airline business and not attempts to employ subsidies to revise outmoded industry structures.”
From January to September, the Lufthansa Group attained an operating result of 290 million euros, maintaining its leading role in the airline business. That figure is, however, well below the year-earlier 794 million euros in the same period, since business developments at the Group were gravely affected by the effects of the terrorist attacks in the United States and the worldwide economic downturn. Lufthansa is having to contend with a steep decline in demand accompanied by rising costs. Under the impact of the terrorist attacks, earnings in September alone were depressed by 180 million euros. Pre-tax profits at the nine-month stage totalled 246 million euros. The net profit after taxes came to 65 million euros.
Despite the difficult macro-economic conditions, Lufthansa lifted traffic revenues by 5.5 per cent to 9.5 billion euros. Passenger business contributed to overall growth with a 7.5 per cent increase in revenues. Other revenue rose sharply by 55.2 per cent, largely due to full consolidation of the Sky Chefs group. All in all, the Lufthansa Group boosted sales year-on-year in the first nine months by 14 per cent to 12.3 billion euros. The cost of materials rose in the term by an above-average 22.4 per cent, principally because of higher fuel expenses. The Group`s outlay on fuel was up on the year-earlier level by 28.5 per cent or 278 million euros. Had it not been for a foresighted hedging policy, the fuel bill would have been 112 million euros higher. Staff expenses were also up by a disproportionate 16.5 per cent. Pay rises for ground staff and cabin crews as well as the first-time consolidation of Sky Chefs inflated staff costs by 432 million euros to 3.0 billion euros.
These figures for the past nine months say virtually nothing in the present situation. Amid the uncertainty about the length and effect of the crisis, and future developments in the aviation industry, it is impossible at present to make a serious forecast on the full year results in 2001. Lufthansa has launched an immediate package of measures to safeguard the Group`s liquidity and avert an operating loss over the full twelve months.
Faced by a weakening economy, Lufthansa began adapting capacities even before September 11. Meantime, it has withdrawn 43 aircraft from service. Their withdrawal is keeping load factors at a respectable level. At the same time, Lufthansa is keeping its options open in order to be back in force, once demand picks up again. “While improving our earnings position, we must act just as quickly to ease pressure on the cost front,” said Weber. And that includes measures affecting personnel expenses.
“In view of the crisis, the Executive Board is taking a ten per cent cut in basic remuneration in addition to the expected reduction in their performance-related pay.” In doing so, the Board is setting a clear lead, said Weber. “I assume that the entire senior management team at Lufthansa will make a similar, exemplary contribution towards mastering the crisis together. In the bid to adapt costs to the employment situation, the staff are also taking leave to use up their remaining holiday entitlement and overtime. The prime objective, though, is to maintain flexibility. Since all these measures will not on their own suffice, Weber added, Lufthansa is negotiating with the unions in order to resolve the dilemma between costs and employment. The aim is to avoid layoffs or redundancies. Those talks are being conducted in a partner-like atmosphere and a spirit of constructive dialogue.
The Lufthansa Chairman issued a strong warning against competition distortion in the grave economic situation troubling the airline industry. He again voiced his opposition to higher charges and government subsidies. “Digging into state coffers to prop up ailing airlines merely finances excess capacities, which distort competition. Consolidation in the industry is inevitable and ought not be artificially delayed, Weber emphasised.
Lufthansa is in agreement with the Federal Government that subsidies are not the answer in a competitive industry. “The macro-conditions, in which airlines operate, are in a hopeless muddle. There can be no talks of a level playing field,” complained the Lufthansa CEO. An end must be put to political island solutions in the industry. In Federal Chancellor Gerhard Schröder, Lufthansa has an important ally for its stance that the three core issues of security, insurance and subsidies should not be resolved unilaterally on the national level but on a EU-wide basis.