Virgin plunges further into the red while Lufthansa sees half-year profits rise

Two of Europe's largest airlines, Lufthansa and Virgin Atlantic Airways have reported opposing financial performances, with the post-11 September crisis pushing Virgin further into the red, while the German flag carrier has had to revise full-year profit forecasts upwards after a strong first half.

Massive cost and capacity cuts after 11 September cost Virgin £94 million ($144 million) and resulted in a pre-tax loss of £92 million for the full year ending 30 April. A year ago, Virgin reported pre-tax profits of £45 million on revenues of £1.52 billion. Revenues this year were just under £1.42 billion.

With only £107 million in net cash as of 30 April, Virgin may be forced to turn to its owners, Virgin Group (51%) and Singapore Airlines (49%), for more money to support its plans for fleet and route expansion.

Virgin Atlantic said earlier this year that it was considering a flotation, but with results like these - and in the current market - this is unlikely in the short term.

In May, Virgin was granted £25 million by its shareholders as short-term working capital (this cash does not appear on the balance sheet). The airline expects to make a small profit next year. Despite its poor performance, Virgin is proceeding with expansion plans and intends to start Manchester-Barbados services from October 2003. It already operates to Antigua, Barbados and St Lucia from London Gatwick.

Lufthansa, meanwhile, has pushed up its forecast full-year operating profits for this year to €500 million ($490 million), on the back of strong half-year results. Interim profits climbed to €332 million on revenues of €8.17 billion, compared with an operating profit of €105 million made on revenues of €7.8 billion in the first half of last year.

Lufthansa has "managed its capacity cuts well, and was helped by lower fuel costs", says an industry analyst. The airline has reported a slight increase in passenger yields to 12.1¢ per revenue passenger kilometres, compared with 11.8¢ in the first half of 2001, despite a sluggish German economy.

"Like [the position at] British Airways, revenue per passenger is up. This is a benefit of keeping capacity under control," says Chris Tarry, airlines analyst at Commerzbank. Lufthansa says its forecasts are not based on the German economy picking up noticeably before year-end.

The carrier is in a stronger position in its home market than some competitors, notably BA, but analysts believe low-cost competition could become more important for Lufthansa in the longer-term. The real problem, not only for Lufthansa but for the entire sector, is the prospect of war against Iraq, which could send fuel prices soaring, Tarry says.

Elsewhere in Europe, Finnair reported a €27 million operating profit for the first half of this year - just under 40% down on last year's, but a sign that cost cuts and a shift towards the Asian market have started to pay off.

Source: Flight International