N1003U

LH indeed seems to be a solid player in a tough industry, but most successful? One would have to question on what criteria:

• Fleet Size?
• Sales?
• Growth over the past 20 years?
• Market capitalization?
• Profitability?
• Passenger count?

I don't think LH leads on any of those things (though I suppose it might be possible to construct some linear combination of these criteria to claim LH is the best).

I suspect in raw economic terms, the backbone of German export has depended a lot more on the Reederien and Eastern European trucking services than on LH.

I can think of other metaphors that perhaps fit better.

I suspect die Eiche has suffered the same fate as the DM, and since a while now worldwide, boar hunting season is open.

Even in the wealthiest lands in the EU, the spread between Vne and Vs is growing narrow with time. I suspect LH is a lot closer to the boundaries of the flight envelope than they are willing to admit publicly.

A healthy airline is a bit like a fat kid with asthma, who is healthy compared to his neighbors who are drug addicts passed out on a park bench.

GBM.flights

Hopefully FT will give us in the future the possibility to quote something posted previously...

well, it seems, for once, we agree.

Just 2 points:
1) I enjoy when you quote figures because I know it's going to be wrong and off by quite a margin to prove whatever agenda you're trying to push
Your quoted 100 Mio were actually 400
Quote from a paper of a top business school as you like.

2) With all your contributions in this thread, and with your love for all things LH, I see you as the Nekkie-in-Chief.

oliver2002

Interesting survey of Germans approach to flying:
http://www.bdl.aero/de/bdl-reports/h...aucher-report/

(sorry the english version wasn't uploaded yet)

It sort of explains what LH is... interesting is the choice of booking avenue... no wonder the general public doesn't care about the gds fee....

N1003U

Not sure I follow the argument...from the 1,010 qualified survey participants (i.e., German residents who have flown at least once in the past two years), 57% booked themselves, 26% did not book themselves (I suppose that means primarily via a travel agent? friends? family?--important missing information here), and for 17%, the booking was part of a travel package.

Yet only 370 of the respondents booked bit the web (220 on an airline site, 150 on another site). Thus can we conclude ~200 or 20% of Germans still book air tickets themselves via telephone, or walk into a travel agency? That I find interesting.

Also when you filter on "frequent flyers" (defined in the survey as people who have flown at least 10 return trips in the past two years), people who one would think would be more sensitive to such charges, the percentage of respondents drops to only 7%.

How do the profiles of German flyers overall compare with the profile of LH customers and their booking habits? I would expect a reasonably high correlation, but with so many non-frequent flyers as respondents, it would be interesting to know for sure. I wonder how many of the respondents would even be aware of the GDS fees. An indication or how important the GDS fees are might be how many book via travel agents and how many who book themselves are aware of the fees and are also aware of alternatives. That information I missed, if it was in there.

I did find it amusing that among the 26% of respondents who had serious frustration with a particular mode of travel, 80% were totally frustrated with The Bahn...and among those frustrated travelers, surprisingly few were frustrated with air travel (6%). Perhaps expectations are lower for air travel.

NewbieRunner

Lufthansa Group increases profit for 2015 significantly

"German airline group Lufthansa forecast slightly higher profits in 2016 thanks to lower fuel prices, but warned of price pressure from rivals and falling ticket yields as it ramps up its Eurowings budget unit.
...
The group reported 2015 adjusted earnings before interest and tax of 1.82 billion euros, in line with its forecast and against the average analyst expectation in a Reuters poll for 1.84 billion euros.

It proposed a dividend payment of 0.50 euros per share."
Reuters

"Deutsche Lufthansa AG on Thursday reported a sharp rise in full-year earnings aided by lower fuel costs, while signaling the pace of improving financial results would slow in 2016."
WSJ

"The 2015 Annual Report of Deutsche Lufthansa AG will be published simultaneously with this media release at www.lufthansagroup.com/investor-relations at 07:30am CET on Thursday 17 March. Our Annual Results Media Conference will be held at 11:00am CET, and will be broadcast live online at www.lufthansagroup.com."
Lufthansa press release

gum

Thanks for the interesting links, NewbieRunner!

This is really interesting news. Let me focus on two developments that IMHO are unexpected and astonishing:

1 Firstly Germanwings and Eurowings have -according to Lufthansa - a positive contribution! Investor relations highlights that "Germanwings and Eurowings make positive earnings contribution".

Not only revenue but earnings contribution! IMHO a long-haul operation with widebody aircrafts and only Y/Y+ seating lacks the high-revenue per square feet Business Class.

But time will show if Lufty can keep this low frills airline on track even in the nowadays harsh economic environment.


2.) Let me cite a logn quote from the link:

"Cargo weaker, service companies continue to grow

The earnings contribution of Lufthansa Cargo declined 40 per cent to EUR 74 million. The airfreight market had seen sizeable overcapacities from the beginning of the 2015 summer flight plan onwards, with a correspondingly negative impact on Lufthansa Cargo’s load factors and yields."

This statement is contrary to the forecasts of the economic development the government communicates in Germany and some other countries. With the cargo volume not on the rise this may be a first hint to a cooling off of the ecobomic climate.

A dividend of 0,50 Euro sounds great - but I think this money should be better used to invest in the company respectively reduce debts.

Just my ideas.

Rambuster

I am not surprised at the Cargo decline.
LH cargo is (and has been) amongst the most expensive cargo carriers.
I have sizeable air cargo operations in our company and we never utilise LH as they are far more expensive than anyone else.

N1003U

My take, based on listening to the conference call (while doing something else):

LH seems to have ridden along on the general updraft in the industry (low fuel costs, general macroeconomic stability), but the cost and pricing trends trends are both still going in the wrong direction (ex- fuel costs are still increasing, and ex-currency prices are still decreasing). That is not necessarily good news for the future. Deferring major capital expenditures like aircraft purchases and major facility expansions did wonders for the cash flow.

On analyst asked specifically about the results of SCORE, but despite best efforts on the part of the questioner, no quantified information on results was forthcoming (read: we can't actually point to a place were SCORE saved money).

There seems to be a belief that keeping EW and LH separate in terms of marketing, while centralizing some management and out-of-sight operational functions will save money. How those savings would materialize apparently requires faith.

At the top strategic level, there were some comforting words: focus on maintaining margins on mainline hub operations, turn EW into a going concern, expand MRO. Whether or not LH can execute is another discussion. That MRO is now getting more intensive price competition is a little bit concerning. MRO is one of the places where LH should have a competitive advantage.

In short, a decent year, in a year that should have been incredibly great.

gum

Thanks for the contribution, Rambuster! Appreciated.

N1003U

This article is a bit more blunt about LH financial performance.
(granted, Fortune Magazine is not exactly a bastion of meaningful journalism, but then what business press is these days?)

OTOH, perhaps a bit of criticism is in order. The truth hurts sometimes.

LH has not come close to solving it's structural cost problems (which may not even be possible, barring a German political revolution), and at the same time, they don't seem to have figured out how sell the value proposition of their advanced technical capability and great personnel, either. These are potentially good assets to have, but they do, BTW, cost a fortune. Taken together, one could imagine there is going to be more pain in LH's future.

I know I feel the pain (in my cash flow) a lot of the time when I book an LH ticket, and I felt the pain of the flight attendant Saturday on my flight from ORD, when I handed her an article out of SZ on the pay and pension disputes that are still raging at LH. The financial performance pretty much speaks for itself.

I will concede that the current management does seem fair in the sense that they are intent on abusing all of their important stakeholders almost equally, be they customers, employees, or investors, until people begin to see the genius of the latest whatever plan they belched out after breakfast yesterday.

Perhaps it is instructive to compare LH to a similar-sized semi-competitor in the same industry:

DL (you know, the largest of the crappy US3, who fly around with dirty, ancient scrap boxes instead or real aircraft, with surly crews, and a market-based FF program that doesn't even have the decency to offer fixed award prices), on US$40B/36B€ in revenue (cf. LH with 32B€) produced somewhere between US$7-8B in income (depending on which line on the income statement is your personal preference--net income, EBIT, adjusted EBIT, EBITDA, etc.), paid a dividend, gave US$1.5B to the employees as profit sharing, and bought back a few hundred million worth of stock, just because they didn't know what else to do with the money (essentially handing another pile of money back to investors to do something else with it).

All this in an environment of increasing customer satisfaction and yields.

Hmmm..how is this possible? Yes, in the good years, good old Yankee financial leverage helps, but interestingly, DL is slightly less leveraged (at 20% equity) than LH (at 18%, up from 13% last year).

YuropFlyer

Chapter 11 most certainly helps. Cut all those pensions funds away.

Why is Swiss able to run at higher profitability than it's mother despite generally higher wages in Switzerland and a strong CHF?

We all know the answer..

It's (one) of the main problems that LH does have: Old contracts, both for pilots as well as FAs, which they most certainly are very happy about, and (together with their pensions) are putting a heavy drain on LHs profitability.

But LHs position isn't unique. It's something quite some "old" carriers are sickening under (think Air France) - and in fact this is one of the big problems that society will eventually face. People in their 50s and 60s probably had the best slot ever in history. No war, good education, nice, steadily increasing salaries, hardly any criminality, affordable housing, safe pensions etc. etc. - have a look at the current generation (especially those below 30-35) - living on internships (Generation Praktikum), and if it's a real job it's often paid just enough to make it from one paycheck to the next one, hardly any savings, rather dark future.. the soziales Gleichgewicht (social stability) in Germany and elsewhere is having massive pressure put on it, and I'm not sure where it will end.

N1003U

+1

I heard this claim as well, but when the claim was questioned but one of the analysts, instead of proudly citing some sources of the claim, Ms. Menne was actually quite defensive.

With a handful of long-haul aircraft, a disaster of a long-haul launch, and a 60% load factor on short haul (remember load factor and smooth turnaround on flights is EVERYTHING when you are an LCC selling 49€ tickets), it sure would be interesting to understand the assumptions that were made to claim EW is profitable. Unfortunately, no details on the claim were forthcoming.

My personal suspicion (if the claim of a profitable EW is, in fact, true) is that the results are being produced by raping customers who, in certain instances, have no viable service alternative to EW on select routes. If that is the case, penetration onto DE of the more traditional LCCs will with time alter that arbitrage opportunity.

I for one can be counted among the skeptics that EW is profitable, since the top-level operational data is not encouraging. The ME3 generate cash flow with slave labor and low hub costs. I am not sure how LH can make money with both low fares and low load factors, even in an EW environment.

I think Rambuster summed it up well: LH Cargo is expensive and undistinguished.

This is lip service to the claim (largely unsubstantiated, as nearly as I can tell), that LH, unlike its shifty and unreliable competitors, pays a regular dividend and is a solid company in which to invest...

N1003U

Yes it helps, but I am not sure it is the prime factor involved.

In Delta's case, bankruptcy was fairly short and shallow. DL burned almost every single piece of furniture they had to try to save cash and stay out of bankruptcy (except, apparently, C. E. Wollman's desk), but it wasn't quite enough. Contributing to the problem was to some extent food poisoning after swallowing NW.

I hear a lot of criticism of "generous" US bankruptcy laws, but I am not sure the loudest critics understand how they work. When a company becomes insolvent, the government's involvement is generally limited to a judge determining who among the debt and equity holders has priority in absorbing the losses. Any new investment required after re-structuring generally comes from private sources sensing new opportunity. All those risks are generally priced into the deal when you buy in. Bankruptcy is also not a huge stigma in the US. It is part of the risk of a lean capital structure, and an integral part the brutal-but-efficient process of efficiently applying labor and capital to where they are most productive. This, IME, is also not so well understood amongst the socially squeamish and people who are afraid of change.

To be a beneficiary of a real bailout in the Land of the Free (where the taxpayer actually steps in and gives money), you have to be part of a more privileged class of companies, like the auto industry. . Ford will probably never be forgiven for telling the government to shove it in 2008, and negotiating their own private line of credit to get them through the crisis.

The trend of putting retirement savings responsibility onto employees themselves has been a trend in the US for a full generation now (not that we have adjusted for it by saving more all that much, but then, the Baby Boomers are just starting to retire, at least those who can afford to retire).

I would like to know more about the conditions under which old Swiss died and LX emerged and was assimilated into the LH borg. That was never fully explained to me.

That, and their inability to differentiate their product enough to justify the price premiums needed to continue compensation at the traditional levels.

This is a good point. Some of us believe is will not end well.

kamel123

Yes.

Their HR strategy seems to be an utter failure. Personnel costs again increased by 10% in 2015! So, you try playing hardball with pilots and FAs, accept that it leads to multiple disruptive strikes, and as a result costs increase by 10%?

The annual report quotes some mixture of currency effects, new collective agreements, and higher pension liabilities to explain the effect.

Number of employees by the way has remained pretty much constant (+0.5%), despite lower number of aircraft / only slightly increasing number of flights, i.e., productivity is not increasing either.

GBM.flights

I remembered this when I saw an interview on Bloomberg with Delta's CEO

http://www.bloomberg.com/news/articl...edging-for-now