Lufthansa profits beat estimates despite strike

AP News
Posted: Oct 31, 2012 4:41 AM
Lufthansa profits beat estimates despite strike

FRANKFURT, Germany (AP) — German airline Lufthansa said profits jumped 30 percent in the third quarter despite a strike and higher fuel prices. The company's CEO said it wasn't enough, however, and vowed to intensify cost cutting.

The airline credited cost reductions it has already made for the profit, as well as better earnings from its services businesses such as repairing and catering other companies' planes.

CEO Christoph Franz called the results "respectable" but warned the company would need to be even leaner to deal with multiple challenges to its profitability. Those include higher fuel prices as well as competition from no-frills airlines and state-backed carriers in the Middle East. It must also pay costs imposed by governments, such as a German air traffic tax levied on every departure and the purchase of emissions trading certificates under a European Union program aimed at reducing global warming.

"We are making progress on the costs within our control. However that is not enough to earn adequate margins," he said, referring to profit margins, or the amount by which revenues exceed costs.

Net income rose to €642 million ($832 million) from €494 million in the year-ago quarter, beating analyst estimates for €225 million. Revenue rose 6.2 percent to €8.31 billion. Strikes by flight attendants between Aug. 31 and Sept. 7 cost the company €33 million.

Lufthansa has been cutting costs and said it was already seeing benefits in earnings. It has announced plans to eliminate 3,500 administrative jobs and will move many short-haul routes within Europe to its lower cost carrier, Germanwings.

The company said it was also getting stronger earnings from its maintenance, catering and information technology businesses that sell those services to other companies. Additionally, the airline business is seasonal, with more people travelling in the second and third quarters so that earnings then tend to be stronger than in the first and fourth quarters.

Franz warned, however, that the company freight business was seeing a fall in demand and lower earnings, which can be a sign of an impending downturn in the overall economy. Almost half of Europe's 17-country euro currency union are in recession as heavily indebted governments such as Greece, Portugal, Ireland, Spain and Italy try to right their finances. Demand in Asia is slowing and the U.S. economic recovery is fitful.

"The environment in which we have to operate is getting more and more demanding," Franz said in a statement. "And we don't yet have the level of profitability we need to be able to make the required investments. So we will have to intensify our efforts."

Meanwhile, low-cost carriers are cutting into Lufthansa's business within Europe. On lucrative longer routes, Lufthansa faces competition from airlines such as Abu Dhabi's Etihad Airways, Emirates and Qatar, which are adding seats to Europe.