Lufthansa Group narrows losses in 1Q; Eurowings weighs down profits

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Lufthansa Group reported a 2018 first-quarter net loss of €57 million ($70.2 million), narrowed from a net loss of €68 million in the year-ago quarter. Group revenue for the quarter was down slightly to €7.6 million, down 0.7% compared to the 2017 1Q.

The group said its network airlines—Lufthansa German Airlines, Austrian Airlines and Swiss International Air Lines (SWISS)—“increased their adjusted EBIT margin significantly by 3.2 percentage points to 2.4% in what is traditionally the weakest quarter for all airlines …. However, “these improved earnings were largely offset by significant one-off costs at point-to-point carrier Eurowings from its growth in the context of the airberlin insolvency.”

Regarding Eurowings, Lufthansa said in its quarterly report that, “Despite a 28.8% year-on-year increase in its first-quarter capacity, the airline’s [Eurowings’] unit revenues excluding currency factors were up 3.5%. But with significant one-off costs from the integration of former parts of airberlin, first-quarter unit costs excluding fuel and currency factors were 7.6% above their prior-year level. Adjusted EBIT for the Eurowings Group declined €71 million to €-203 million. One-off expenses will continue to burden unit cost trends at Eurowings in the months ahead.”

The group said the adjusted EBIT for the network airlines amounted to €114 million in the first quarter of 2018, €154 million above the prior-year result. “The network airlines thus made a major contribution to the group’s good first-quarter result. With a continued high demand, unit costs excluding fuel and currency factors were reduced by 1.9%, while unit revenues excluding currency factors increased by 1.5%.”

According to the group’s 1Q financial statement:

Lufthansa German Airlines raised its adjusted EBIT by €95 million to €83 million and achieved its highest first-quarter adjusted EBIT margin of the past 10 years.
SWISS improved its first-quarter adjusted EBIT by €64 million to a record €99 million, implying an adjusted EBIT margin of a good 9% and remaining the group’s most profitable airline.
Austrian Airlines saw its first-quarter adjusted EBIT decline €8 million to €-67 million following extensive flight cancellations on three days in the period as a result of work meetings related to wage negotiations.
Fuel costs for the first three months of 2018 remained on prior-year level at €1.2 billion (up 0.9%) since volume growth and higher average prices were compensated by currency effects and successful hedging.

Lufthansa CFO Ulrik Svensson said, “Our modernization is paying off. We are again in a position to grow our core business profitably. And we are able to grow in those areas where the quality is best for our customers and the costs are low.”

Compared to its earlier guidance, the Lufthansa Group said it now expects an organic capacity growth of some 6% for 2018.

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