Mayrhuber Sets Course for Profitable Growth

13th Nov 2003

Lufthansa, in a repeat of its second-quarter success, posted another operating profit in the third quarter. The Group returned a third-quarter operating profit of 200 million euros thanks to successful capacity adjustments and a tight rein on costs. “That is a solid result and shows that turbulence in the industry cannot throw us off course. We must now gather speed and gain more altitude. Much still remains to be done before we again attain the profitability required to fund growth and secure employment,” said Wolfgang Mayrhuber, Chairman of the Executive Board and CEO Deutsche Lufthansa AG, commenting today on the Group`s quarterly figures.

For the first nine months, Lufthansa posted a cumulative operating loss of 154 million euros. Over the past six months, the Group has thus reduced the record loss of 415 million euros sustained in the first quarter by 261 million euros. In the nine-month term in the previous year, Lufthansa returned an operating profit of 790 million euros. Despite continuing economic weakness, the Group is expecting marginal improvement in the traditionally weak fourth quarter. For the full year in 2003, it is seeking a nearly balanced operating result.

The aviation industry is not only crisis-ridden, it is struggling with structural problems, noted Mayrhuber. The recent crises have only brought the underlying problems more quickly to the forefront. “The macro-economic conditions, in which we operate, have changed profoundly and will change even more. We must, therefore, embark on a new course,” the Lufthansa CEO underlined.

Lufthansa must assume in its planning that yields will continue to decline for a long time to come, so that the Group has only one way to forge ahead: “We must save 1.2 billion euros over the next two years so as to create the foundations for future growth and reactivate our 66 grounded aircraft. We will continue to trim costs wherever necessary. We will invest, simultaneously, in quality and safety, in new aircraft like the Airbus A340-600 and A330-300, in our new Business Class on long-haul routes, in our lounges and in new terminals.” Lufthansa must be able to do both: contain costs while simultaneously accelerating innovation.

Lufthansa strategy, in a word, is to achieve greater profitability by combining integrated and interdisciplinary solutions across the entire value-added chain with ongoing cost-cutting and efficiency measures. The resultant benefits will be re-invested in improving quality and product differentiation. The focus will remain consistently on the customer.


To that end, Lufthansa is conducting negotiations with internal and external business partners as well as with the trade unions and works council representatives. “In the “Air Traffic for Germany” initiative, we are also making our contribution towards improving general conditions for airlines operating from a German base,” said Mayrhuber. Only when the national base is competitive can Germany expand its leading position in international air traffic.

Within the Lufthansa Aviation Group as well, Wolfgang Mayrhuber is speeding up change. “Lufthansa requires competitive network structures. Only by raising productivity and further reducing costs in the continental route network can we grow on long-haul routes.” The “Future development of continental traffic” programme aimed at restructuring our domestic and continental traffic is a key to growth and the success of Lufthansa.

“The Lufthansa product will be set off more sharply from others: Business Class will be distinctly upgraded, punctuality, reliability and quality will be further improved,” said Mayrhuber, setting out the measures to be implemented in the three core route network, production and product areas. As already announced, Lufthansa is restructuring its regional traffic on 1 January 2004, so as to further optimise its cooperation with regional partner airlines and integrate them more closely in the concept of the Aviation Group.

On the product side, Lufthansa will naturally further simplify procedures on the ground and offer more sharply differentiated inflight services in the aircraft cabin. “Our quality standards will remain pitched at a high level with more service and greater comfort in future for business travellers and frequent flyers.” We aim to offer a better inflight product than the competition: On all German domestic and European flights, the centre seat in Business-Class rows will be blocked to provide 50 per cent more stowage space and freedom of movement as well as greater privacy. “We are convinced that our new inflight product will position Lufthansa in the vanguard of Europe`s airlines,” Mayrhuber said. Lufthansa will also offer flights to bargain hunters.

“In conformity with the new production concept, we intend to raise aircraft productivity by ten per cent at the start of the summer flight schedule,” Mayrhuber explained. Our aircraft will serve decentral European connections only in the ping-pong mode, shortening time on the ground by five minutes and reducing the complexity of flight scheduling. “We can depeak at our Frankfurt hub by spreading flights out more during the day in order to increase flow-through and, simultaneously, reduce disruption. We will become better and more efficient,” Mayrhuber underlined.

Group revenue in the nine months from January through September was down on the year-earlier level by 6.5 per cent to 11.8 billion euros. Traffic revenue from flight operations in a still difficult market environment dipped by 6.2 per cent to 8.5 billion euros. Other operating income climbed 31 per cent to 1.1 billion euros. The figures include book profits of 79 million euros from the disposal of an equity stake in Start Amadeus and 119 million euros from aircraft sales.

Rigorous cost and capacity management in all business segments contained operating expenses in the third quarter at the level in the same quarter a year ago. In comparison with the first nine months in the prior year, those expenses this time round were up by 3.4 per cent to 12.9 billion euros. Staff costs in the nine-month term rose by 4.5 per cent to 3.4 billion euros. Adjusted for changes in the group of consolidated companies, they fell by 0.9 per cent.

At the end of September, the Lufthansa Group was employing a total of 94,963 people. Discounting the newly consolidated companies, the workforce was down year-on-year by 3.9 per cent or 3,594 employees to a total of 87,949. Fuel expenses increased by 2.6 per cent to 992 million euros. Had it not been for price hedging, the Group`s fuel bill would have been 92 million euros higher.

The net loss for the first nine months 2003 totalled 409 million euros compared with the year-earlier net profit of 344 million euros. Net indebtedness for the January-September period was down versus the figure at year-end 2002 by about 300 million euros to the excellently low level of 835 million euros. Lufthansa invested a total of 717 million euros from cash flow in fleet renewal, and financial and tangible assets.



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