Swiss and MRO unit lead Lufthansa profits in first half

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Strong contributions from MRO unit Lufthansa Technik and Swiss International Air Lines helped Lufthansa overcome challenges elsewhere in the group to improve overall operating profit in the first half.

Lufthansa today disclosed group operating profit was down 17% in the second quarter to €359 million ($481 million), but profitability was up more than €40 million for the half year, at €114 million.

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Much of the challenges in the first half related to Lufthansa and Germanwings, as falling yields were compounded by disruption to services from strike action by pilots and problems repatriating ticket sales from Venezuela. Operating profit was down 30% in the second quarter for Lufthansa and Germanwings, and when combined with the loss-making first quarter, the divisional loss widened more than €50 million to reach €146 million in the first half.

Operating profit also halved in its logistic business segment, where despite a slight pick-up in air freight demand in the first half, traffic remained at last year's levels and fell short of expectations at the start of the year.

"In view of the poor revenue development, Lufthansa Cargo has already made sharp reductions to its own freighter capacities this year. In a tough competitive environment, the focus remains on capacity management intended to support average yields," the group says. "Under these conditions, it will no longer be possible to achieve the target of significantly increasing revenue compared with 2013." Lufthansa Cargo now expects its operating profit to be slightly higher than last year.

The bulk of the group's first-half operating profit was delivered by its MRO business and Swiss. Lufthansa Technik delivered an operating profit of €206 million in the first half, though this was 6% down on same period last year.

"We have new business in place so the pipeline is well filled," says finance chief Simone Menne. "There is a bit of weakness in the VIP business… but for the rest, we see we have a pipeline of new contracts."

Swiss meanwhile delivered an improvement of almost €30 million in first-half operating profit, to €92 million, though this was largely thanks to change in deprecation policy at the group.

"Swiss also felt a downturn in demand in its markets recently. Given a moderate increase in passenger numbers and sales, as well as numerous measures to cut costs and boost earnings, the company is nonetheless still anticipating its results to be significantly higher than last year," the group says. "This is largely due to the new depreciation policy for aircraft." Swiss made a €286 million operating profit in 2013.

Lufthansa Group, which cut is full-year guidance in June of this year, says it remains confident of posting a group operating profit of around €1 billion for 2014 or €1.3 billion excluding non-recurring items and of around €2 billion in 2015.