Less than one year after the Sept. 11 terrorist attacks threw the industry into crisis, Germany’s national carrier reported an unexpectedly strong jump in first-half operating earnings and sent its share price soaring.
Bucking the post-Sept. 11 trend
The airline posted operating profit of 332 million euros, up from 105 million euros in the year-ago period, which was marked by a strike of its pilots. Analysts’ forecasts had averaged less than 200 million euros.
Even though other European airlines have also seen an improvement in earnings, they did not match the increases enjoyed by Lufthansa. “We are well on track to become market leader in Europe,” said chief financial officer Karl-Ludwig Kley.
The markets applauded the news with a 10% intraday jump in Lufthansa’s share price. The stock closed up 9.22% at 13.27 euros.
Lufthansa recently raised its forecast for full-year operating profit. Kley said on Wednesday that the new figure had been on the conservative side, and he now set a target of “at least 500 million euros”. If the economic recovery on Lufthansa’s home market picked up speed, the result could turn out still better, he said, prompting several analysts to raise their operating profit forecasts to 600 million euros for the year.
Lufthansa also reduced its net debt level, to 1.1 billion euros from 2.7 billion euros in the first six months.
Uwe Weinrich, analyst at HypoVereinsbank, said that cost-cutting measures initiated by the carrier together with a reduction in capacity, had started to bite. The group’s problem child, in-flight caterer LSG Sky Chefs, booked a positive result before goodwill write-offs – a development that Weinrich described as signaling a turnaround and further instilling confidence in investors.
However, the measures taken at Sky Chefs burdened the overall financial result, and the Lufthansa group was left with a net loss of 27 million euros, which was still an improvement on the 43 million euros booked in the first half of 2001. Revenue in the first six months rose 4.7% to 8.17 billion euros.
Market experts believe Lufthansa is set to pay a dividend of up to 60 cents per share this year after not making a payout in 2001.
But the group’s tourism arm continues to struggle. Kley said that tour operator Thomas Cook AG will not achieve the profit target set for this year and will book a loss. Lufthansa holds a 50% stake in the company, which has been hit hard by the slump in demand for package holidays. The remaining shares are held by retail giant KarstadtQuelle AG.
Nevertheless, several analysts believe that Lufthansa can achieve record group operating earnings of more than 770 million euros this year because operating profit is set to be boosted by a number of special items. These include income of more than 500 million euros from the sale of express delivery service DHL, 70 million euros in compensation payments for the direct impact on business from the terrorist attacks, and a book profit of more than 75 million euros from the sale of ground-services provider Globe Ground.
Additional income could also be generated trough the liquidation of 180 million euros in reserves for the loss-making Scandinavian business of Sky Chefs. Lufthansa is in the process of renegotiating unprofitable catering contracts with Scandinavian airline SAS. Chief financial officer Kley said he was confident agreement could be reached this year.