In what it describes as a “challenging operating environment”, Lufthansa Group reported revenue for the third quarter 2019 rose by 2% to €10.2 billion, with third-quarter EBIT of €1.3 billion, compared to €1.4 billion in the prior year. The Adjusted EBIT margin was 12.7%, which was 14.1% in the prior year. Fuel costs for the period were €171 million above their prior-year level, primarily due to currency movements. Cost reductions in other areas only partly offset the increase.
In the nine months to end of September 2019, Lufthansa total group revenues increased by 3% to €27.7 billion (prior year: €26.9 billion). Group wide fuel costs for the first nine months were €620 million above their 2018 level. Nine-month Adjusted EBIT declined 30% to €1.7 billion (prior year: €2.5 billion), while the nine-month Adjusted EBIT margin was 6.2 percent (prior year: 9.1 percent). The net group result for the first nine months amounted to €1 billion (prior year: €1.8 billion).
“Our airlines were able to translate their premium quality and market strength into solid third-quarter earnings,” said Carsten Spohr, chairman of the executive board & CEO of Deutsche Lufthansa. “At Eurowings the turnaround measures are showing first results; and at Austrian Airlines, Brussels Airlines and Lufthansa Cargo we will be taking tangible corrective action to improve earnings. As Europe’s leading airline group, we are on a sound and stable strategic course.”
The third-quarter earnings were supported by continued strong business on North Atlantic routes. Unit costs were also substantially reduced in the third quarter, particularly at the Network Airlines.
Lufthansa stated that its Network Airlines will grow only moderately in the 2019/2020 winter timetable period, and Eurowings will even reduce its capacity in response to “the continued pricing pressures in Europe, which are further intensified by a general slowdown in the global economy”.
Lufthansa, SWISS and Austrian Airlines achieved an Adjusted EBIT of €1.6 billion for the first nine months of 2019 – a decline of 23% on the prior-year period. Their nine-month Adjusted EBIT margin amounted to 9.0%, a 3.1 percentage-point decline (prior year: 12.1 percent).
The Network Airlines’ currency-adjusted unit revenues for the first three quarters of 2019 were down 2.8% on the prior-year period. Business over the North Atlantic remained strong, however, and even improved compared to 2018.
The Network Airlines’ currency-adjusted unit costs (excluding fuel) for the first nine months were down 0.8%from their prior-year level. Third-quarter unit costs were reduced by as much as 2.1%, as the Group’s Network Airlines felt the combined benefits of a substantial improvement in the stability of their flight operations (and thus lower delay and cancellation costs) and a much slower increase in maintenance costs than they had seen in the first half-year.
Eurowings third-quarter Adjusted EBIT increased by 39% to €169 million (prior year: €122 million). Currency-adjusted unit revenues were up 3.5% for the period, due to a “substantial reduction in long-haul capacity and operational improvements”. Unit revenues in short haul declined at a low single-digit percentage rate.
Nine-month Adjusted EBIT for Eurowings amounted to minus €104 million, a 6% decline (prior year: minus €98 million). Nine-month currency-adjusted unit revenues saw a 1.8% decline, while nine-month currency-adjusted unit costs (excluding fuel) were down 3.8%.
Lufthansa expects Eurowings to be back to profitability by 2021, and should achieve a margin of 7% in the longer term.
The Group’s Aviation Services reported mixed developments. Nine-month results for Lufthansa Cargo declined to minus €33 million (prior year: €162 million) as a result of continuing weak demand, especially on Asian routes. Lufthansa Technik raised its nine-month earnings 10 percent to €371 million (prior year: €337 million).
Nine-month earnings for the LSG Group were slightly down on 2018 at €93 million (prior year: €99 million).
“In an increasingly challenging market environment, it is more vital than ever that we consistently take every action within our influence and further reduce our costs,” says Ulrik Svensson, Chief Financial Officer of Deutsche Lufthansa. “We expect all Group companies to make their contribution here. And to these ends, we have resolved several further measures to improve the performance of our only modestly profitable and even loss-making companies.”
Austrian Airlines will in future focus solely on providing air services from and to its Vienna hub. All of its decentralised bases will be closed. The aircraft fleet will also be standardised, with all the present Bombardier Dash 8 Q400s replaced by Airbus A320s by 2021. The group believes that these actions will increase productivity and reduce personnel costs to help generate additional annual cost savings of €90 million by the end of 2021. (See more details on this story here.)
Brussels Airlines should achieve an Adjusted EBIT margin of 8% in 2022. The group is realigning is network to better benefit from synergies with the Network Airlines in the future. The administration of Brussels Airlines will be comprehensively digitalised and streamlined, while the standardistion of the fleet as well as productivity and process improvements in flight operations will also contribute to sustainable cost reductions.
Lufthansa Cargo will have its aircraft fleet both standardised and downsized. All ten operational Boeing MD-11 freighters will be withdrawn by the end of 2020. At the same time, two further Boeing 777Fs will be added, resulting in a fleet of nine Triple Seven freighters. Lufthansa Cargo will also continue to focus on reducing its costs.
Lufthansa will be investing more than €3 billion in the fleets of its airlines in 2019, receiving a new and more fuel-efficient aircraft an average of every two weeks. The Lufthansa Group is also working with various partners to research new sustainable fuels. Customers can already order the sustainable fuels that are available for their air travel, or offset the carbon emissions it generates, via the online Compensaid platform.
From next January, business clients of Lufthansa, SWISS and Austrian Airlines will also be carbon-neutral in all their air travel within Europe, since this provision will be gradually incorporated into all the corresponding corporate travel agreements from this point onwards.
“The future of sustainable and carbon-neutral air travel lies in the use of synthetic fuels,” Carsten Spohr maintains. “Germany’s air transport tax, which has again been substantially increased, must be used to promote the research and development of processes and procedures to produce such fuels. A financial cycle of this kind is the only way to achieve truly effective climate protection within the air transport sector.”
Lufthansa has confirmed its previous guidance for full year 2019, for which it expects to report an Adjusted EBIT margin between 5.5 and 6.5%, which corresponds to an Adjusted EBIT of €2 to 2.4 billion. Total revenues for the year are expected to rise by a single-digit percentage amount. Fuel costs are expected to be some €650 million above their 2018 levels.
The Network Airlines still expect to post an Adjusted EBIT margin of 7 to 9 percent. The Network Airlines will also report an overall capacity increase of 4 percent for the full year.
Eurowings continues to expect an Adjusted EBIT margin for 2019 of minus 4 to minus 6 percent. Eurowings’s capacity will decline by 1 percent on 2018.
For its logistics business segment with Lufthansa Cargo, the Group expects to report an Adjusted EBIT margin for 2019 of between 0 and 2 percent, in view of the current weak market demand.
The annual revenue projections have been raised for Lufthansa Technik and LSG. The Lufthansa Group now expects to report a low-double-digit percentage increase in revenues at Lufthansa Technik for the year, and a low-single-digit percentage increase for LSG. The expected Adjusted EBIT margins for both entities have been confirmed at their previous levels: a margin of 7 to 8 percent for Lufthansa Technik and of 2 to 4 percent for LSG.