N1003U

Well said.

I find it interesting that, for example, as WN continues to grow and provide more of a hub-and-spoke route structure in the USA (and now Mexico), they seem to be morphing into something that starts to resemble a mainline carrier, and their pricing seems (IME) to reflect increasing operating costs to support the larger network structure...as a result, WN is also starting to offer some "premium" services (e.g. Business Select product, with priority check-in, security, and boarding, etc.) to attract higher fare-paying (but still price sensitive) customers...

I still can't imagine a lean-enough organization growing out of an LH or AF to make an LCC operation work in the long run. 4U is an interesting laboratory to me.

gojko88

True, although LH has merely adapted the business structure that had already been in place prior to their purchase of Eurowings. Creating a new low-cost base and business model from scratch is a much more complex task IMHO.

GBM.flights

Tomorrow 1st half of 2014 interim report.
I'm curious to see how traffic and revenue figures go given the earlier guidance that sent the share price tumbling.

http://investor-relations.lufthansag...-jun-2014.html

LufthansaFlyer

Here's the fodder for all the 'expert' opinions:


Lufthansa Group raises operating profit for first half-year

Improved cost structures and lower depreciation help increase operating profit by EUR 41 million to EUR 114 million / competitive pressures on fares, devaluation of the Venezuelan bolivar and pilots’ strike depress second-quarter results / Lufthansa Group to slow capacity growth for the winter period and go on the offensive with new innovation and quality drives / profit outlook for 2014 and 2015 confirmed

Deutsche Lufthansa AG reports an operating profit of EUR 114 million for the first six months of 2014, an improvement of EUR 41 million on the EUR 73 million of the same period last year. Total revenue for the period amounted to EUR 14.2 billion, a decline of just under 2.1%. Adjusted to exclude non-recurring expenditure totalling some EUR 105 million – for such actions as the accelerated installation of the new Lufthansa Business Class seating and provisions relating to the Score programme – the first-half operating result amounted to EUR 219 million, a EUR 75 million year-on-year improvement. The prime reasons for the improved result were the positive impact of the new depreciation policy for aircraft and spare engines which was adopted at the beginning of the year and the enhanced cost structures in the passenger business segment. The net result for the first half-year amounted to EUR -79 million, a EUR 124 million improvement on the prior-year period.

“For the full year 2014, we are confirming our profit guidance, despite the unusual adverse developments in the second quarter. This quarterly performance was shaped by a number of one-off effects, such as strikes and currency devaluations. At the same time we have presented a comprehensive work programme with quality, growth and innovation initiatives, which we will drive forward with great determination. In doing so, we are also forging the right path for strengthening the Lufthansa Group’s competitiveness and future viability,” says Simone Menne, Chief Officer Finance & Aviation Services of Deutsche Lufthansa AG. The goals already announced in this regard, Menne continues, include raising the contribution to overall revenues from new businesses, new platforms and the Group’s service business segments from the present 30% to 40% between now and 2020.

The positive impact of enhanced cost structures and lower depreciation needs was countered by factors which contrived to lower operating profits, particularly in the second-quarter period. Overcapacities – especially on North and South American services, on European routes and, more recently, on Asia-Pacific routes – prompted price declines in both the passenger and the cargo segment. The strike in April by Vereinigung Cockpit pilots’ union at Lufthansa also eroded EUR 60 million from the first-half group operating result, while the impairments required on outstanding receivables in the recently-devalued Venezuelan bolivar removed a further EUR 61 million. The Group has already responded to the declines in passenger and cargo revenues by reducing its planned further seat-kilometre capacity growth from the original 5% to 3%.

The first-half operating result for the Passenger Airline Group amounted to EUR -96 million, a EUR 32 million decline on the prior-year period. Lufthansa and Germanwings reported a first-half operating result of EUR -146 million (down EUR 55 million), while Austrian Airlines posted an operating result of EUR -44 million (down EUR 9 million). Swiss reported a first-half operating profit of EUR 92 million, a EUR 29 million improvement on the prior-year period.

Lufthansa Technik achieved a first-half operating profit of EUR 206 million, only EUR 13 million below the high level of the prior-year period. LSG SkyChefs reported a first-half operating profit of EUR 18 million, largely in line with prior-year levels, and IT Services raised its first-half operating result by EUR 6 million to EUR 11 million.

The Lufthansa Group aims to increase the share of total revenues which is contributed by its service business segments, its new businesses and its new platforms (including the new WINGS multi-platform concept for point-to-point air services away from the Group’s major hubs) from the present 30% to 40% between now and 2020. This goal is part of a broader raft of measures, including quality and innovation drives, through which the Group aims to participate even more substantially in the further growth of the aviation sector.

In the shorter term, the Lufthansa Group expects the markets to remain weak in the second half of 2014, though with the capacity reductions already initiated the situation should ease somewhat compared to the first-half period. For 2014 as a whole the Group remains confident of posting an operating profit of around EUR 1 billion, or EUR 1.3 billion excluding non-recurring items. And for 2015 the Group currently expects to achieve an operating profit of around EUR 2 billion.

The first half of 2014 in figures

Total revenue for the first six months of 2014 amounted to EUR 14.2 billion, a 2.1% decline on the same period last year. Total operating income also declined 2.4%, to EUR 15.2 billion. At the same time, total first-half operating expenditure was reduced by a more substantial 3.7% to EUR 15.0 billion. Fuel costs for the period declined by EUR 260 million or 7.4% to EUR 3.2 billion. The figure includes a EUR 23 million loss from fuel price hedging activities. Fees and charges were 0.1% above their prior-year level.

The Lufthansa Group achieved an operating profit of EUR 114 million for the first half of 2014. The net result for the period amounted to EUR -79 million, a EUR 124 million improvement on the first six months of 2013. First-half earnings per share rose from the EUR -0.44 of 2013 to EUR -0.17.

The Lufthansa Group increased its investments in modernizing and maintaining its aircraft fleet to EUR 1.3 billion in the 2014 first-half period. All in all, the Group invested EUR 1.6 billion, some EUR 196 million more than in the same period last year. Cash flow from operating activities totalled EUR 1.7 billion, while free cash flow (operating cash flow less net capital expenditure) amounted to EUR 546 million. Net debt stood at EUR 1.6 billion, down EUR 81 million year-to-date. The balance sheet equity ratio capitalization principles amounted to 16.6%, down 4.4 percentage points from the end of 2013.

The interim report for the first half of 2014 will be available on the www.lufthansagroup.com/investor-relations website from 07:30 CEST on Thursday 31 July. The corresponding webcast for media and analysts will be broadcast on the same day from 09:30 CEST via the following link: www.lufthansagroup.com/investor-relations

seat 1a

Happy to see that Techink,LSG and IT is doing fine , and the rest fixed by bookkeeping

YuropFlyer

Lufthansa and Germanwings reported a first-half operating result of EUR -146 million (down EUR 55 million), while Austrian Airlines posted an operating result of EUR -44 million (down EUR 9 million). Swiss reported a first-half operating profit of EUR 92 million, a EUR 29 million improvement on the prior-year period.

Basically that means, LH and 4U are STILL - despite all the cost-cuts, heavily unprofitable, as apparently more and more of their (former) customers are looking elsewhere.

Most of the increased profit from LX comes from one-time-earnings, and eventually with SCORE also making customers chose other competitors there (Swiss are slow on choosing new ways, but once gone, stay gone) seems to be just one direction in the whole group: Downwards.

Well done Franz.

I doubt Spohr will have the ability to turn the ship around.. not from what I've seen in the last months..

And all of this while direct competition like IAG, EK etc. are posting good profits, and the economy is going WELL in LH's core market(s).

Now imaging the economy taking a dump..

SuperFlyBoy

Surprisingly, I just priced one of my routings on BA (IAG) - and found that the pricing was very similar to what LH *used* to charge.

Now LH is 15-20% higher, and the soft product keeps deteriorating. (Disclaimer: Still have to fly BA long-haul, but my siblings are very pleased with the overall experience...)

oliver2002

In other news SQ posted H1 profits that are -52% lower YOY. They are getting smashed by the ME3 on Europe-SEA and Europe-Oz:
http://centreforaviation.com/analysi...results-180289

Curiously the pilot strike 'only' costs LH 60 million, I was expecting something in the range of 72-80.

IAN-UK

I thought I was reasonably savvy in these things, but this bit has a corporate geek-speak, opaque, smoke and mirrors feel to it:

The Lufthansa Group aims to increase the share of total revenues which is contributed by its service business segments, its new businesses and its new platforms (including the new WINGS multi-platform concept for point-to-point air services away from the Group’s major hubs) from the present 30% to 40% between now and 2020. This goal is part of a broader raft of measures, including quality and innovation drives, through which the Group aims to participate even more substantially in the further growth of the aviation sector.

can some kind soul paraphrase the main drift of this?

N1003U

Have to be careful about reading too much into interim reports, but it seems the slow decline continues...lower revenue against increase in the industry (i.e. more loss of market share), most cost savings coming from lower fuel prices. Higher personnel cost against lower revenue means lower productivity. Looks like counting paper clips and putting one less fried potato on dinner plates saved about $100 million under "other expenses" (Go SCORE!). Complaining about hedging costs strikes me as similar to complaining that you didn't get to use your life insurance benefits...

Is LH still sticking to their 1.5B€ earnings goal for 2015? If so, are we taking bets yet when they abandon it?

Just about everyone seems to be having trouble with the price war in Asia. I suspect it is hitting SQ particularly hard, but they can probably take it for a (short) while.

Not sure what was happening behind the curtain during the strike, but as a customer, my anecdotal experience was that LH handled the strike very smoothly and proactively (they re-booked me quickly and efficiently just after the strike was announced, no questions asked). Seems they minimized the damage from the strike very well.

Rambuster

The non core activities will grow from 30% to 40% because core activities will continue to shrink in revenue!

YuropFlyer

Problem of SQ is that on their traditional routes (Europe-Asia / Europe-Australia) the ME3 are offering better flight times quite often, a similar product in all classes, and generally lower prices, so it's no surprise SQ is having a hard time. EK can compete in Europe to (Southern) China, even if it means a few hours longer to fly, flying via SIN will add up hours and hours..

SQ's position is probably even more tricky than LH's, but as this thread is about LH's success (or the lack of ), I guess I shouldn't go that much off-track.

Was the "1.5 billion earning" actually meant for the whole LH group, or just LH itself? Guess they couldn't be any further from it..

And they already got quite some of the short-term benefits, without the mid-long term negative effects (pax tend to react slowly) yet being fully on.. so, I doubt it will improve much in the future..

N1003U

Adding "balance" and "diversification" to the business mix?

YuropFlyer

Didn't they till recently wanted to get rid of LH IT systems, and maybe even the catering?

seat 1a

But no worries ! LCC long and short will solve it all .