'Pricing pressure' sees Lufthansa sink into the red

'Pricing pressure' sees Lufthansa sink into the red

Pricing pressure weighed heavily on Lufthansa Group in the first quarter of the year as it sunk into the red. 

A net loss of €8 million was reported against a profit of €425 million in the same period last year which was helped by €503 million profit from the early conversion of a convertible bond in US carrier JetBlue.

Total revenue declined by 0.8% to €6.9 billion in the first three months of 2016 with traffic revenue down by 3.9% despite “significantly higher” numbers of passengers.

This was a reflection of the “substantial pricing pressures” faced by the group’s airlines and its cargo business.  

Cash flow from operating activities declined 21.5% to €1.1 billion in the traditionally weaker winter three months. This was primarily attributable to a trend towards more last-minute bookings.

However, adjusted earnings [EBIT], described as the leading financial performance indicator, improved by €114 million to give a loss of €53 million.

The earnings improvement was driven by Lufthansa and Austrian Airlines. All other operating companies in the group reported lower results. The adjusted EBIT of Lufthansa increased by €244 million, while Austrian Airlines posted a €23 million improvement.

The adjusted EBIT at SWISS was down €28 million, owing largely to a decline in demand in the face of the strong Swiss franc. Eurowings saw first-quarter adjusted EBIT down by €33 million, reflecting the start-up costs of long-haul operations and the costs for its structural set-up, the German airline group said.

Chief financial officer, Simone Menne, said: “We are seeing significant pricing pressure at our passenger airlines, and even more at Lufthansa Cargo.

“But the substantial unit cost reduction at our passenger airlines has more than made up for the pricing declines.

“And we are not just benefiting from further fuel cost reductions and non-recurring effects. We have also improved our operating cost structure. This marks an important change in trend in our unit cost development.”

Menne added: “The trends we have seen in the last few months are likely to continue throughout the present quarter.

“The intensity of the competition and the resulting pricing pressures will not ease – not least because of the low fuel costs. This is why it is important that we continue to work consistently on our cost positions. We remain fully committed to our goal of reducing our unit costs this year net of fuel and currency impacts.”      

The group’s full year forecast remains unchanged with adjusted earnings expected to be slightly above last year’s result of €1.8 billion.


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