ATW Daily News

Lufthansa looks to expedite recovery with deferrals, cost cuts

Friday October 30, 2009

Lufthansa warned yesterday as it released its nine-month interim report that "revenues remain at rock bottom despite record load factor" and that "all business segments are working hard. . .to adjust their structures to the altered competitive environment."

CFO Stephen Gemkow said at the Frankfurt news conference that LH is discussing delivery deferrals with aircraft manufacturers, part of the Passenger Airlines segment's new Climb 2011 program designed to "safeguard earnings" through cost cuts and boost the company's result by €1 billion ($1.48 billion) by 2012. The group posted a €184 million third-quarter profit but remained €32 million in the red through the first nine months of 2009, reversed from a €529 million profit in the year-ago period (ATWOnline, Oct. 29).

Gemkow said the deferrals would apply to aircraft scheduled to arrive in the 2010-13 timeframe, although he provided no specifics. LH's first A380 remains set to arrive in December. Chairman and CEO Wolfgang Mayrhuber told ATWOnline that the carrier has no plans to alter the A380's cabin configuration in response to the downturn. "We won't change anything," he said.

But initiatives are underway elsewhere in the company. "In addition to the ongoing capacity adjustments, sustainable cost-cutting measures are being taken to deal with the change in demand and revenue," LH told shareholders.

The Passenger Airline segment reported third-quarter revenue of €4.58 billion, down 6% year-over-year, and a profit of €240 million, up 54.8%. Nine-month profit of €306 million was a 40.8% drop from the year-ago period. Third-quarter traffic rose 10.1% to 46.78 billion RPKs against a 9.1% capacity increase to 56.76 billion ASKs, sending load factor up 0.7 point to 82.4%. The group operated 725 aircraft at the close of the quarter compared to 531 the prior year, owing largely to the addition of Austrian Airlines (104 aircraft) and bmi (68) to the company.

Lufthansa Cargo lost €61 million in the quarter, reversed from a €51 million profit in the 2008 quarter, on a 37.6% plunge in revenue. It is €193 million in the red through the nine-month period. Lufthansa Technik reported an €89 million third-quarter profit, up 23.6% year-over-year. Lufthansa Systems' earnings fell 75% to €3 million.

The company said it "still expects a sharp fall in revenue and a diminished result for the full year," with a negative impact resulting from its new acquisitions. It reiterated the possibility that it may fall short of its goal for a full-year operating profit.

by Brian Straus and Kurt Hofmann

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