ANALYSIS: Lufthansa sees one-offs clouding progress

London
Source:
This story is sourced from Pro
See more Pro news »

Lufthansa argues that its underlying profitability is improving despite a decline in the group’s operating result over last year.

The German airline made an operating profit of €661 million ($898 million) between January and September, down from €907 million the year before. Revenue was stable at €22.8 billion.

However, the 2012 figure was "overstated", says finance chief Simone Menne, because it included one-off effects that inflated the result. These included benefits from transferring Austrian Airlines’ operations to regional subsidiary Tyrolean Airways and freedom from responsibility for the pension scheme of former UK subsidiary BMI. Another one-off item arose from redundancy payments incurred under Lufthansa’s Score efficiency programme, but overall, the net effect was to add €325 million to the group's result. If those benefits were excluded, the airline’s "normalised" operating profit in 2012 would have been only €582 million, says Menne.

Meanwhile, this year’s nine-month result excludes €198 million-worth of one-off costs for redundancy payments and other Score expenses incurred during the January-September period. If these costs were included in the calculation, the "normalised" operating profit would stand at €859 million, 47% above the 2012 level.

How Lufthansa reverses the picture:

asset image

SOURCE: Lufthansa

The group improved its operating margin 1.2 percentage points to 4.1%.

Lufthansa chief executive Christoph Franz argues that the efficiency gains are proof of the Score programme's effectiveness. He adds that that the three-year scheme – which aims to lead to €2.3 billion operational profit in 2015 – will only be a "first milestone" in the airline’s future development, indicating that follow-up cost-saving initiatives will be pursued.

Free cash-flow improved almost 60% to €1.6 billion, enabling the airline to cut its net debt nearly 46% to €1.06 billion and, in turn, improve equity ratio by 2.2 percentage points to 19.1%.

Lufthansa blames its stagnant revenue situation largely on unfavourable exchange rate effects, particularly in the Asia-Pacific region.