The continuing weak economy, the after-effects of the Iraq war and the SARS disease have led to a worldwide decline in the demand for air travel. These overlapping crises also had a serious impact on the Lufthansa Group`s business in the first quarter of 2003. The company was hit particularly hard by the consequences of the SARS epidemic in the Asia/Pacific region, where Lufthansa had earlier emerged as the market leader ahead of other European airlines. Despite prompt capacity cuts and cost savings Lufthansa was unable to buck this trend, and consequently posted a negative operating result of -415 million euros. This compares with an operating profit of 12 million euros in the same period last year. “Air transport worldwide is facing its greatest economic crisis ever. The situation has never been so serious”, Jürgen Weber said, presenting the first-quarter figures. “If we want to remain a healthy company and keep our staff on board, we have to further reduce our costs in cooperation with our internal and external partners.” Strict cost discipline and higher productivity would remain at the core of Lufthansa`s success, he emphasised.
Lufthansa acted swiftly at the beginning of 2003 and introduced a comprehensive package of drastic measures. Capacities at Lufthansa and its regional partners were trimmed by an equivalent of 70 aircraft. Capital expenditure and other expenses were cut back, a further D-Check initiative - “Cash 100” - was launched and, in addition to a recruitment freeze, the company also took steps to lower staffing costs. “We must make a concerted effort to take timely contingency measures if we want to keep ahead of our competitors, even in times of crisis,” Weber said. But there would come a time after the crisis, and it was vital to be well prepared for that, he added. Lufthansa was therefore pressing ahead with its future-oriented projects, such as inflight Internet access, the introduction of business jets, improved seats on intercontinental routes and a new service offer for top customers. “Cost saving is important, but cost saving alone is not the future,” Weber stressed. “At the same time we must invest in our products for tomorrow if we want to keep a competitive edge. We have proved repeatedly that we can overcome crises by pooling our strengths.”
In the light of the first-quarter results and the latest traffic results and booking figures, Lufthansa no longer anticipates a positive operating result for the year as a whole. In view of the current uncertainties, it is impossible to estimate the expected loss. But Lufthansa remains as before one of the most financially robust airlines with high liquidity. “Thanks to our financial strength we will be able to maintain the position we have achieved, even if the crisis proves to be protracted. Of that I am convinced”, Weber said. “But we cannot afford to sit idly by. We must take decisive action and then seize our opportunities.”
From January to March the Lufthansa Group generated total revenue of 3.7 billion euros, 4.6 per cent less than in the same period last year. Despite the difficult market environment, the Group`s airlines earned 2.6 billion euros in traffic revenue, which represents a year-on-year decline of 5.8 per cent. Other operating income grew by 91.9 per cent to 401 million euros. This figure includes book profits totalling 79 million euros from the sale of Lufthansa`s stake in Start Amadeus.
Operating expenses rose by 9.1 per cent to 4.4 billion euros in the first quarter. Staffing costs increased by 11.1 per cent to 1.2 billion euros, mainly due to the first-time consolidation of additional companies. The cost of materials climbed by 6.2 per cent to 1.8 billion euros. In the first quarter the Group spent 331 million euros on fuel, a year-on-year increase of 13.4 per cent. Had it not been for the hedging measures that are embedded in Lufthansa`s risk management strategy, the fuel bill would have been 53 million euros higher.
For the first three months of 2003 the Lufthansa Group returned a net loss of -356 million euros, compared to a net loss of -186 million euros in the previous year. The Group`s net indebtedness was further reduced, as planned, falling by 11 per cent compared with the position at 31 December 2002 to Euro 1.0 billion. The company`s strict cost cutting measures brought capital expenditure down to 207 million euros, compared to 277 million euros in the first quarter of 2002.
The full Group Report for the first quarter of 2003 is available on the Internet at www.lufthansa-financials.com