Lufthansa Group reports in 2017 its best first quarter earnings since 2008

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The Lufthansa Group today published its 1Q 2017 results. The airline group posted their first positive earnings result since 2008. The total first-quarter revenue for the Lufthansa Group amounted to EUR 7.7 billion, an 11.2% increase on the prior-year period. For the first time Brussels Airlines’ results are also included.

  • Adjusted EBIT up EUR 78 million to EUR 25 million
  • Earnings improvement driven by service companies Lufthansa Technik and Lufthansa Cargo
  • Non-operating results amplify positive earnings trend
  • Revenue up 11.2% to EUR 7.7 billion through consolidation of Brussels Airlines and higher traffic revenue

“We have continued on our successful track in the first quarter of this year and achieved another good result,” said Ulrik Svensson, Chief Financial Officer of Deutsche Lufthansa AG, presenting the Lufthansa Group’s financial results for the first three months of 2017. “For a period that is traditionally difficult for the airline industry, we have posted our first positive earnings result since 2008. This is mainly attributable to favorable trends at Lufthansa Cargo and strong growth at Lufthansa Technik. This demonstrates the strength of our broad setup as aviation group.”

“At our airlines,” Svensson continued, “we are seeing positive developments in the pricing environment and significantly higher traffic revenues. At the same time, however, we cannot be satisfied with the cost development of our airlines. So we will continue to keep a clear and consistent focus on cost. Our positive earnings development in the first quarter was boosted by non-operating results. It is important that even without these, we would still have reported an improved first-quarter result.”

First time full consolidation of Brussels Airlines

Total first-quarter revenue for the Lufthansa Group amounted to EUR 7.7 billion, an 11.2% increase on the prior-year period. With passenger numbers up a substantial 13.0% and cargo sales also up a sizeable 8.3%, first-quarter traffic revenue increased by 10.9% to EUR 5.8 billion. 4.9 percentage points of this increase can be attributed to the traffic revenues from Brussels Airlines, which has been fully consolidated for the first time since 1. January 2017. This has also increased the total workforce of the Lufthansa Group to around 129,000 employees.

The leading forecast number Adjusted EBIT amounted to EUR 25 million for the first quarter of 2017, a EUR 78 million improvement on the same period last year. EBIT for the period was improved by EUR 65 million to EUR 16 million. The net result for the period amounted to EUR -68 million (Q1 2016: EUR -8 million).

First-quarter fuel costs totaled EUR 1.2 billion, 13.0% above their prior-year level. Non-fuel constant currency unit costs at the Group’s airlines rose by 1.4%. The increase was due to various factors, particularly higher MRO costs at Lufthansa German Airlines and Austrian Airlines as well as higher passenger-related costs as a result of improved seat load factors. Against a 9.5% increase in capacity, constant currency unit revenues declined by 1.1%. In March, the passenger airlines of the Lufthansa Group airlines saw an improvement in their yields for the first time since 2013.

Network airlines post weaker results

The Network Airlines of the Lufthansa Group raised their first-quarter revenues by EUR 224 million to EUR 4.9 billion. Their Adjusted EBIT for the period declined by EUR 76 million to EUR -40 million against a strong comparison base in the previous year, which included a non-recurring item at Austrian Airlines. Lufthansa German Airlines posted a first-quarter Adjusted EBIT of EUR -12 million (down by EUR 57 million), while Austrian Airlines reported an Adjusted EBIT of EUR -59 million (down by EUR 29 million). Swiss, by contrast, improved its adjusted EBIT for the period by EUR 14 million to EUR 35 million, and remains the Group’s highest-margin airline.

Results for Point-to-Point Airlines at prior-year’s level

Having raised their capacities by 113%, the Group’s point-to-point airlines almost doubled their first-quarter revenues (+81%). In addition to organic growth, the increase is in particular due to the first-time consolidation of Brussels Airlines. Constant currency unit revenues declined by 13.4%. But as unit costs were reduced as well, the Point-to-Point Airlines’ first-quarter adjusted EBIT of EUR  132 million was largely in line with its prior-year level.

Service companies drive positive earnings development

The positive development of the Adjusted EBIT is attributable primarily to improvements at Lufthansa Cargo and Lufthansa Technik. Lufthansa Cargo benefited from a good recovery in cargo demand and the first successes of its cost reduction program and raised its Adjusted EBIT for the period by EUR 52 million to EUR 33 million. Lufthansa Technik increased both its revenues and its margin (to 9.4%) to post an Adjusted EBIT of EUR 137 million, a EUR 50 million improvement on the first quarter of 2016. Despite restructuring costs, the LSG Group posted an earnings result which, at EUR -2 million, was broadly in line with (+ EUR 2 million) prior-year levels. The Group’s other companies and central functions increased their first-quarter earnings (including currency and consolidation effects) by EUR 58m versus the prior year to EUR 29 million.

Solid development of key financial indicators

The improved operating result and strong advance bookings raised the Group’s cash flow from operating activities by 49.5% to EUR 1.6 billion. Free cash flow almost doubled to EUR 1.1 billion, despite a 5.7% increase in capital expenditure. Net financial debt was reduced to EUR 1.9 billion, 28.7% down from its level at the end of 2016. The equity ratio also declined to 17.9%, some 2.7 percentage points down from its 2016 year-end level. This is a result of the extended balance-sheet total from a new promissory note loan, the first time consolidation of Brussels Airlines and favorable advance booking trends.

Pension provisions rose by 3.5% compared to 2016 year-end to EUR 8.7 billion, as a result of a 0.1-percentage-point reduction in actuarial discount rates. The initial contribution of EUR 1.6 billion into the defined contribution pension fund for the flight attendants of Lufthansa German Airlines is not yet accounted for and will only be reflected on the balance sheet later. This will then shorten the balance sheet total again and improve the equity ratio accordingly.

Outlook

“Despite our strong first-quarter results and the good forward bookings at our airlines, our full year guidance for 2017 remains unchanged,” says Ulrik Svensson. “At our airlines, we do not yet have a sufficient visibility on the bookings in the important third quarter.”

For the full year 2017, the Lufthansa Group expects to report substantially higher revenues and an Adjusted EBIT slightly below previous year. Fuel costs (including those for Brussels Airlines) are expected to increase by some EUR 500 million. With 4.5% organic capacity growth and a 12.5% overall increase in capacity, constant currency unit revenues are expected to decline less than in 2016. And despite the increase in unit costs recorded in the first quarter of 2017, the Lufthansa Group remains committed to its long-term objective of lowering its non-fuel constant currency unit costs, and will continue to consistently pursue this goal.

The Lufthansa Group  January to March Change
2017 2016  
Total revenue EUR m 7,691 6,916 +11.2%
  of which traffic revenue EUR m 5,808 5,235 +10.9%
EBIT EUR m 16 -49
Adjusted EBIT EUR m 25 -53
Adjusted EBIT margin 0.3% -0.8% +1.1 pts.
Net profit for the period EUR m -68 -8
Capital expenditure EUR m 554 524 +5.7%
Cash flow from operating activities EUR m 1,648 1,102 +49.5%
Employees as of 31 March 128,541 121,894 +6,647
Earnings per share EUR -0.15 -0.02

The table shows the consolidated results (including Brussels Airlines) for the first quarter of 2017.


Q1 2017 financial results: Austrian Airlines Begins 2017 with Traditionally Negative Winter Quarter

Finance Results

• Revenue and passenger growth as result of fleet expansion
• Adjusted EBIT down from minus EUR 29 million to the “normal level” of minus EUR 59 million
• Outlook: Positive annual results in 2017, but lower than previous yearAustrian Airlines, Austria’s flag carrier, reported earnings before interest and taxes (EBIT) of minus EUR 55 million in the seasonally-related weak winter quarter of January to March. Adjusted EBIT amounted to minus EUR 59 million (Q1 2016: minus EUR 29 million). However, a comparison to the previous year is not conclusive due to the positive one-off effect in the first quarter of 2016, relating to the conclusion of a long-term lease agreement with Vienna Airport for the Technical Base. To enable a better comparison, adjusted EBIT in the first quarter of 2015 totaled minus EUR 53 million. At the same time, Austrian Airlines has been able to significantly expand its business volume. In the first quarter of 2017, revenue climbed 10% and the number of passengers carried by the airline rose 7% due to the integration of additional and larger aircraft.

“We are pleased with the passenger and revenue growth”, says Austrian Airlines CFO Heinz Lachinger. “This demonstrates the sustained demand for our flight services in spite of the difficult market situation. At the same time, the seasonal effect of winter, typical for this latitude, continues to have a strong negative impact on our business. We are confident that we will be able to make up for this in the second quarter. We expect clearly positive business results for the entire year of 2017, but below the prior-year level”, he adds.

First-quarter revenue rose 10% to EUR 440 million (Q1 2016: EUR 400 million) as a result of the expansion of the fleet and increased bilateral flight traffic between Austria and Germany. Total operating revenues were up 2% to EUR 472 million, whereas total operating expenditures climbed 7% to EUR 527 million due to higher fuel and maintenance costs. EBIT amounted to minus EUR 55 million in the first quarter of 2017, thus below the comparable prior-year EBIT of minus EUR 28 million. Adjusted EBIT, which, for example, deducts book gains from aircraft sales, totaled minus EUR 59 million (Q1 2016: minus EUR 29 million).

Austrian Airlines carried 2.2 million passengers in the first three months of the current year, comprising a rise of 7% or 136,000 more passengers than in the first quarter of 2016. The flight offering measured in available seat kilometers (ASK) was increased by 3% to 5.1 billion. Capacity utilization fell by 2.6 percentage points to 68.5% (see the attached chart). This decline is related, among other things, to the replacement and expansion of the medium-haul fleet with Embraer instead of Fokker aircraft. On average, the new Embraer jets are more than 20% larger than their Fokker counterparts.

In the first quarter of 2017, Austrian Airlines operated a total of 29,808 flights, or an average of 318 flights per day, using 82 aircraft (a year-on-year rise of six). In the year 2016, the airline’s fleet was expanded by two Airbus A320 jets used for bilateral flight traffic. This is complemented by four (of a total of five planned) Airbus A320 aircraft, which Austrian Airlines has leased from airberlin within a wet lease agreement starting in March 2017. The regularity of operation amounted to 98.4% in the first three months, whereas the punctuality rate on departure was 86.3%. The sharp decline in punctuality of more than four percentage points, in comparison to the first quarter of 2016, was related to the more unfavorable weather conditions prevailing in the first quarter of 2017.

The total staff of the Austrian Airlines Group amounted to 6,585 employees as at the balance sheet date of March 31, 2017 (March 31, 2016: 6,149 employees). This substantial rise of 436 employees (+7%) primarily relates to the cockpit and cabin crew.

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