The Business Times

Low oil price sends Lufthansa profits soaring

Published Thu, Mar 17, 2016 · 11:10 PM
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[FRANKFURT] German airline Lufthansa said on Thursday that low oil prices and booming passenger business sent profits soaring in 2015, a year marred by the Germanwings crash and drawn-out industrial action by pilots and crew.

Lufthansa chief executive Carsten Spohr described last year as an "emotionally challenging year" due to the crash of a passenger jet in March belonging to its low-cost subsidiary Germanwings, killing all 150 people on board.

"2015 was a very, very sad year. It was a year of extremes," he told the group's annual earnings news conference.

"Emotionally, it was the most difficult in the company's history, but at the same time, it was one of the best in Lufthansa's financial history," Mr Spohr said.

In addition to coping with the fallout from Germanwings disaster, the German carrier also battled two long and bitter separate industrial disputes with pilots and cabin crew over pay and pension provisions, during which there were repeated walkouts, including a record seven-day stoppage in November.

At the core of both disputes is Lufthansa's declared strategy to keep pace with budget rivals by trimming personnel and labour costs.

Nevertheless, "2015 was a good year in economic terms," Mr Spohr said.

Net profit soared to 1.7 billion euros (S$2.6 billion) in 2015, from just 55 million euros a year earlier.

Underlying or operating profit grew by 55.2 per cent to 1.8 billion euros and revenues were up 6.8 per cent at 32.1 billion euros.

"The doubling in the passenger airlines' result is not only due to lower fuel costs, but also to the favourable developments in our passenger volumes and to our capacity discipline," CEO Spohr said.

As well as the Lufthansa brand, the group also owns Swiss and Austrian Airlines, as well as low-cost carriers Eurowings and Germanwings.

And underlying profits in the passenger business doubled to 1.5 billion euros in 2015 from 701 million euros in 2014.

Germanwings and Eurowings reached profitability for the first time.

An A320 Airbus jet belonging to Germanwings crashed in the French Alps on March 24, 2015, apparently a deliberate act on the part of co-pilot Andreas Lubitz who had a history of depression.

The strength of Lufthansa's profits "also confirms that our focus on quality in both the premium and the point-to-point segment is the right approach. And the very good results from Lufthansa Technik and LSG Sky Chefs further affirm that the Lufthansa group is on the right track," Mr Spohr said.

The management board will propose a dividend payment of 0.50 euros per share for 2015 after no dividend was paid for 2014.

"Our dividend policy is clear and comprehensible," said chief financial officer Simone Menne.

"We are committed to making continuous dividend payments to our shareholders in the years ahead."

Looking to the current year, Mr Spohr said "we are aiming to increase our result for the Lufthansa group again." Underlying earnings are expected to "increase slightly," he said.

The forecast did not, however, include any earnings impact from possible strikes, he added.

Once again, the group's passenger airlines "are expected to be prime drivers of such earnings growth." Low oil prices will help reduce costs, providing "a welcome tailwind for our 2016 results," said CFO Menne.

"But cost discipline remains one of our paramount tasks. We must lower the unit costs at our hub airlines. This is and remains the key to maintain our competitiveness," she said.

Despite the group's confidence, Lufthansa shares were the biggest losers on the Frankfurt stock exchange on Thursday, plunging 7.2 per cent at one point to an intraday low of 14.18 euros.

They ended the day down 4.5 per cent at 14.56 euros.


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