LIBERUM: Strategy & Stock Selection - The coronavirus effect
Investor sentiment has continued to wane as markets try to quantify the economic implications of the coronavirus. Global equities and commodities have faced continued downward pressure, while haven assets have ticked higher (Figs 1 & 2 ).
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12 Feb 20
The passenger number fell slightly in December
Whereas Network airlines continued seeing rising passenger numbers (+2.5% to 7.45m), Eurowings saw the number dropping by 7.9% to 2.41m. However, both divisions improved their SLFs (+2.6pp to 81.2% and +1.0pp to 79.1%, respectively). However, a budget airline with a lower SLF than an incumbent one suggests that Eurowings’ profit problems are far from having been solved. Unfortunately, Lufthansa will no longer release these numbers on a monthly basis.
13 Jan 20
The passenger number was down in November
… but our full-year projections seem reasonable. The carrier suffered from walkouts by the cabin crews which, according to management, lowered the passenger number by about 180k. Excluding this, the passenger number would have been about unchanged.
12 Dec 19
Lufthansa sells majority stake in its European catering business
The carrier had announced in late November that it intended to sell the European part of its catering activities to Swiss Gategroup. It has now published its intention not to sell these activities in their entirety but a majority. It has not announced any details but mentions that the transaction, if approved by cartel authorities, will not lead to any changes of its 2019 and 2020 profits.
09 Dec 19
Lufthansa to re-open long-distance budget flights?
Eurowings is the carrier’s budget airline and it has generated losses. According to management, most of these losses occurred on long-distance flights. As a consequence, Eurowings has reduced its long-distance offer since earlier this year. Rumours are now suggesting that management intends to introduce another brandname for these destinations.
01 Dec 19
Lufthansa sells its European Catering business
Catering has been the carrier’s least profitable operation in recent years. The last peak margin was 5.5% in 2013 and it has been well below this level ever since. Management has now decided to sell the European part of this business to Swiss Gategroup, a company specialised in catering and ancillary businesses.
26 Nov 19
Passenger growth continued moderating in October
Lufthansa’s strategy to limit Eurowings to flights within Europe and the around the Mediterranean Sea is showing up in the passenger numbers since the middle of this year or so. As a result, and as the group is not willing to give up the associated slots, Lufthansa’s passenger number continues rising, whereas Eurowings’ number is falling.
13 Nov 19
Good profit development at Eurowings in Q3
Eurowings revenue per sold seat-kilometre has fallen since Lufthansa has shown its budget airline as a separate division. This has changed in the last quarter when it increased by 2.8%. This is one reason why the consolidated accounts’ EBIT and net earnings numbers were higher than we had anticipated.
07 Nov 19
LIBERUM: Lufthansa - Q3 results ahead, FY guidance largely unchanged
A smaller than expected fall in Q3 Adjusted EBIT reflected some outpeformance at the passenger airline divisions, offset by an awful performance in Cargo. A sharp increase in the pension provision may unsettle sentiment, despite not having cash implications.
07 Nov 19
Continuously rising passenger numbers but falling cargo demand
The passenger number growth has moderated somewhat in September (+2.3% to 14.0m), but the SLF continued to increase (+0.1pp to 84.7%). On the other hand, sold ton-kilometres fell by 3.6% whereas the ytd number is down by ‘only’ 1.9%.
11 Oct 19
Stable growth of the passenger number in July
The passenger number of Network increased by 4.0% in both the last month (to 10.6m) and ytd (to 61.5m). The growth rate was also unchanged at Eurowings, but it was only a fraction (+1.5% to 3.96m and 22.0m, respectively) of the former. In fact, management’s new strategy is to limit Eurowings’ growth, in particular on long distances.
13 Aug 19
LIBERUM: Lufthansa - Q2 weak as expected, no change to downgraded guidance
The Q2 results were largely as expected, with a 25% YoY fall in Adjusted EBIT mainly reflecting the unit revenue weakness in short haul markets more than outweighing a more encouraging performance in long haul. The services divisions were also disappointing, with Cargo slipping to a small loss.
30 Jul 19
Ticket price marginally up in Q2
Network achieved a 0.7% ticket price increase as passengers travelled more long distances than within Europe. However, revenue per sold seat-kilometre continued falling (-1.5%). Nevertheless, this was an improvement compared to Q1 when this revenue number was down by 3.6%. Point-to-Point also achieved some improvement, but both numbers remained in negative territory (ticket price: -0.5% vs. -0.7% in Q1; revenue per sold seat-kilometre: -1.9% vs. -7.6%, respectively).
30 Jul 19
SLF up but FLF sharply down in both June and ytd
The number of passengers combined with the load factors and prices translate into the carrier’s profits. Although H1 prices are not yet known (the company is expected to release its numbers on 30 July), Lufthansa’s Passenger activities have done well in terms of passenger numbers and the SLF. On the other hand, Logistics continued suffering from falling demand and a sharply lower FLF.
11 Jul 19
Network airlines achieved good passenger growth in May
The carrier was able to increase its SLF in May (+1.7pp to 81.1%) and ytd (+0.8pp to 79.8%). However, while both Network and Point-to-Point achieved higher SLFs, the passenger number was up at Network but down at Point-to-Point. The numbers suggest that our full-year consolidated projections can be achieved.
13 Jun 19
Adjusted EBIT amounts to a loss of €336m in Q1 19
Management blames higher kerosene costs plus a capacity miss-match as having been the reason for the profit warning. While it does not have any influence on the former, it had increased the offer too fast in March this year. Although the Easter break did not fall into that month, it had increased the offer by 4.9% compared to last year’s March when tourists started to go to their holiday destinations.
16 Apr 19
Reasonable passenger growth but still poor logistics
Management seems to have been too optimistic about demand in the month of March, i.e. it increased the offer faster than demand was actually up. This was true for the carrier’s passenger divisions but even more so for air freight. This month’s Easter break will hopefully show a better picture for the former divisions, whereas demand for air freight is likely to remain subdued.
11 Apr 19
2018 numbers better than expected
Lufthansa’s revenue was up by 0.7% to €35.8bn whereas adjusted EBIT fell by 14% to €2.84bn and net earnings by 9% to €2.16bn. We had anticipated the following respective numbers: €35.8bn, €2.63bn, and €2.07bn. As projected, the dividend is unchanged at €0.80.
14 Mar 19
The passenger number was up by almost 5% in January
The number came in at more than 9.0m, of which 6.74m (+4%) booked flights at the carrier’s network airlines and 2.32m (+8%) with its budget airlines. Both divisions were able to increase their SLFs. The former increased its load factor by 0.7pp to 76.5% and the latter by 0.2pp to 75.0%. This latter number continues to be unsatisfying, i.e. budget airlines should have much higher occupancy rates. Network achieved improving SLFs on destinations to both the Americas (+2.1pp to 81.0%) and APAC (+1.9pp to 82.3%), but they fell to the Middle East/Africa (-2.4pp to 76.2%) and within Europe (-1.1pp to 65.2%). The picture is similar for Point-to-Point. The SLF fell slightly on short-haul flights (-0.1pp to 69.1%) but it was up by 0.6pp to 83.4) on long destinations. The group’s cargo business continuoes to be disappointing. Sold ton-kilometres were down by 5.0%, whereas the offer was increased by 7%. As a result, the FLF fell by 7.5pp to 59.1%. It will be interesting to see whether prices continue to increase although volume is falling strongly.
13 Feb 19
Good passenger growth continued in December
The total was up by 7% to just above 9.9m in the last month which brought the 2018 number to more than 142m, an increase of 10%. However, management seems to have expected even stronger growth in December, consequently the SLF fell by 0.3pp to 78.5%. However, yield management improved somewhat in the full-year which resulted in an SLF increase of 0.5pp to 81.4%. On the other hand, there continued to be a mismatch in Logistics. Although demand for ton-kilometres was slightly up in December (+0.4%) and in the full-year (+0.8%), the offer had been increased much faster. Consequently, the FLF fell by 2.8pp to 66.1% and 2.3pp to 66.4%. Passenger growth was much stronger in Point-to-Point (+10% to 2.63m in the last month and +18% to 38.5m in 2018) than in Network (+5.8% to 7.3m and +7.4% to almost 104m, respectively). Nevertheless, both divisions increased their full-year SLFs (+1.4pp to 81.3% and +0.4pp to 81.5%). These numbers suggest that Point-to-Point has to improve the usage of its aircraft considerably as its lower ticket prices (€110 in 9M18 compared to €216 generated in Network) will otherwise not translate into meaningful profits. The regional break-down of Lufthansa’s December passenger numbers shows an increase of those flying to inter-continental destinations at the expense of European destinations. The opposite has been true for the full-year when the carrier continued to benefit from Air Berlin’s bankruptcy in H2 17. This carrier offered hardly any inter-continental flights, i.e. Lufthansa primarily benefited from strongly rising demand on its European destinations.
10 Jan 19
Passenger growth good, but the growth rate continued moderating
The total number of passengers was up by 6.0% to 10.63m in the month of November which brought the ytd number to more than 132m, an increase of 10.3%. Lufthansa’s growth rates had been +13% in Q1, +10% in Q2, and +8% in Q3. As the carrier benefited from Air Berlin bankruptcy late last year, we had expected this moderation. In fact, we might be marginally on the optimistic side as our full-year passenger number requires an increase of 7.5% to 10.7m in the month of December. Network Airlines saw their passenger number rising by 4.5% to 7.93m in November which brought the ytd number to 96.6m, an increase of 7.5%. As the amount of sold seat-kilometres increased more strongly than the offer in both periods, the divisional SLF was up by 0.4pp to 78.6% and 81.7%, respectively. However, these improvements were exclusively achieved by SWISS and AUA, whereas the Lufthansa brand suffered SLF falls of 0.5pp to 78.8% in November and 0.2pp to 81.6% ytd. Point-to-Point Airlines saw their passenger number increasing by 11% to just above 2.7m and 19% to almost 35.9m, respectively. This division was also able to increase its SLF, i.e. sold seat-kilometres increased faster than the offer. As a result, the SLF increased by 0.4pp to 75.6% and 1.6pp to 81.5%. Compared to other low-cost carriers, these load factors continue to be very low indeed. Logistics continued suffering from a mismatch of demand and offer. The amount of sold ton-kilometres fell by 0.9% in November (-1.9% in October), whereas management increased the offer by 3.0% (+5.0% in October). Consequently, the FLF was down by 2.7pp to 68.4%. The respective ytd numbers were +0.8%, +4.0%, and -2.1pp to 66.6%. Whether this allows Lufthansa to continue to increase its prices remains to be seen. The divisional ASP was up by 13% in Q3 and by 11% in 9M18.
11 Dec 18
Passenger number increased by 9% in October
The total reached 13.2m in the last month which brought the ytd number to almost 122m, an increase of close to 11%. To reach our full-year projection, the number has to increase by 7% in November and December which is possible although Lufthansa’s Q4 17 passenger growth was 22% thanks to last year’s Air Berlin bankruptcy. The ytd growth rates were 7.7% to 88.6m in the group’s Network division and 19% to 33.2m in Point-to-Point. To reach our divisional full-year projections, the passenger number has to increase by 2% in Network and 23% in Point-to-Point. At a glance, the latter is very ambitious indeed, whereas we are possibly too cautious for the former. Consequently, our consolidated full-year ticket price is likely to be marginally too low. Both divisions continued to see their SLFs rising in the last month (+0.3pp to 81.8% in Network and +0.8pp to 81.4% in Point-to-Point). Our only concern has been the number of flights. As airlines are modernising their aircraft fleets and new jets offer larger capacities, the number of flights typically increases at slower pace than the number of passengers. This has also been the case with Lufthansa, except for the month of October. The discrepancy is not huge (passenger number: +9.0%; flight number: +9.6%) and it has been more pronounced at Point-to-Point (+13.4% and +15.2%, respectively) than at Network. Nevertheless, management has to continue to concentrate on the optimisation of its offer, otherwise airport fees might increase too fast. Logistics continued to be under pressure. Whereas the offer of ton-kilometres was up by 5.0% in October, demand fell by 1.9%. As a result, the FLF was down by 4.6pp to 65.6%. The ytd FLF was down by 2.0pp to 66.4%.
11 Nov 18
LIBERUM: Lufthansa - Opportunities balanced by fuel headwinds
Lufthansa’s move to consolidate its position of strength in its home markets through the purchase of various ex-Air Berlin assets has seen it incur additional cost and complexity that should unwind next year. While this provides an earnings opportunity not available to most peers, we remain cautious on the prospect of earnings growth continuing into 2019E. Fuel cost pressures are mounting, despite hedging, and the current soft unit revenue trend suggests that pricing will not fully offset the cost headwind in the short term, even with improved capacity discipline. We cut our SOTPbased target price to €20 from €24.50 and our recommendation remains HOLD.
08 Nov 18
LIBERUM: Lufthansa - Deteriorating trends in unit revenues and costs in Q3
A slight shortfall in the Q3 results could be forgiven but we expect attention to focus on deteriorating trends in unit revenues and unit costs. Some of the non-fuel unit cost disappointment in Q3 should not repeat to the same extent. However, unit revenue trends have turned modestly negative, even after stripping out the impact of rapid capacity growth at Eurowings, and the Q4 comparative toughens. Management has left its FY guidance for Adjusted EBIT, unit revenues and non-fuel unit costs unchanged, but we see the latter two as challenging to hit and see modest downside risk to consensus.
30 Oct 18
Passenger growth has moderated, but this was expected
The group saw the passenger number increasing by 8.8% to 13.7m in the month of September, which brought the 9M number to 108.5m, an increase of 11%. As the offer (+7.3%) increased less strongly than demand (+8.3%), last month’s SLF was up by 0.8pp to 84.5%. The 9M SLF was up by 0.6pp to 82.0%. Simultaneously, demand for freight kilometres fell by 1.6%, whereas the offer was up by 6.2%. Consequently, the FLF was down by 5.0pp to 63.4% in the last month and it fell by 1.8pp to 66.4% ytd. The 9M passenger and sold seat-kilometre growth rates are exactly in line with our full-year projections which might be ambitious, as Lufthansa has benefited from Air Berlin’s bankruptcy in Q4 of last year. The break-down between Network and Point-to-Point divisions indicated that we might be slightly too pessimistic for Network but too optimistic for Point-to-Point. Both divisions were able to increase their respective SLFs (+0.6pp to 84.3% and +1.1pp to 85.3% in September, +0.4pp to 81.9% and +1.8pp to 82.1% ytd). As in the months before, Network benefited from disproportionately strong demand for flights within Europe which might change in the months to come as last year’s Air Berlin bankruptcy is likely to take its toll. Eurowings has started to see more moderate growth in its short-haul flights (the passenger number was up by 13% to 3.55m in September but by 20% to a good 27m ytd. On the other hand, the growth rate remained very strong on long-haul flights (+30% to 288k and +28% to 2.44m). However, the absolute numbers indicate that Eurowings and its associated airlines concentrate on intra-European flights.
10 Oct 18
Growth in passenger numbers has clearly moderated in July
The total number was up by 8.2% to 14.16m in the last month which brought the ytd number to 81.1m, an increase of a good 11%. Network airlines delivered the following respective numbers: +5.2% to 10.2m and +7.8% to 59.3m. The numbers for point-to-point airlines were +17% to 3.93m and +22% to 21.8m. As offer and demand were almost matched in July, the consolidated SLF fell by only 0.1pp to 86.3% (network: -0.3pp to 86.3%, point-to-point: +1.3pp to 86.0%). Logistics has suffered a sharper fall of the FLF. In fact, demand for ton-kilometres was down by 2.9% in July which brought the FLF down by 3.1pp to 64.1%, whereas ytd demand is up by 2.0% and the FLF is ‘only’ down by 2.2pp to 66.9%. It is worth noting that almost all of the July network passenger growth was achieved on European destinations (+7% to almost 8.0m) and some across the Atlantic (+2.4% to 1.20m). The numbers fell to both APAC (-2.4% to 661k) and MEA (-6.3% to 436k). The number of passengers flying with Lufthansa’s budget airlines continued rising strongly on both short- (+16% to 3.60m) and long-haul destinations (+32% to 325k).
09 Aug 18
Continuing price pressure resulted in disappointing earnings
Rising costs for wet leases plus flight schedule turmoil at Eurowings (i.e. the Point-to-Point division) have resulted in a sharply higher loss at this division. This division’s poor operating profit performance plus a strong tax rate increase have translated into very disappointing net earnings.
31 Jul 18
LIBERUM: Lufthansa - Q2 in line, FY guidance unchanged, better revenue, worse costs
Results in line with a fall in Adjusted EBIT driven by currency gains in the comparative and one-off integration costs at Eurowings masking underlying progress at Network Airlines and the trading units in Aviation Services. Unit revenue slightly better than expected in Q2 (+1.3% constant currency) and there was a similar improvement in the FY outlook. However, cost pressures continue to build with FY unit cost guidance moving to the worse end of the range and the fuel cost outlook deteriorating. FY profit guidance is unchanged. Our recommendation remains HOLD with a €24.50 TP based on our SOTP valuation.
31 Jul 18
Passenger numbers +12% in both the month of June and H1 18
The earlier beginning of the summer holidays in the State of Hesse than last year has supported the passenger growth numbers in the month of June. On the other hand, Logistics seems to have started to feel the pressure from the trade war.
11 Jul 18
Good passenger growth in April, but the load factors fell
The number of passengers increased by a good 9% to 12.2m in the last month which brought the ytd number to 40.8m, an increase of 12%. Network airlines delivered growth numbers of 6.1% to 8.9m and 7.1% to 30.1m, respectively, whereas the Point-to-Point airlines showed 18% growth to 3.29m and 28% to 10.66m. In fact, both divisions increased their offer more strongly than demand in the last month. Consequently, the SLFs fell by 1.2pp to 81.2% and 0.7pp to 81.2%. On a ytd basis both load factors were up (+0.5pp to 78.7% and +2.6pp to 79.0%). Network airlines suffered falling SLFs on all inter-continental destinations in the last month while it was unchanged on flights within Europe. Lufthansa’s budget airlines also suffered falling SLFs on both short- and long-haul flights. Demand for cargo space continued to be good, but the FLF was down as well in April. It fell by 2.3pp to 67.2% and is also down ytd (-1.2pp to 68.9%). According to management, yields were up, but only on a currency-adjusted basis.
11 May 18
LIBERUM: Lufthansa - Poor profit momentum limits upside potential
We cut our estimates following the recent Q1 results. Higher fuel price assumptions are the main factor. Favourable currency movements and hedging provide protection in the short term. However, we are cautious on the industry's ability to recover higher costs through the revenue line, especially with unit revenue comparatives toughening. Unchanged FY Adjusted EBIT guidance points to a YoY fall, although it is unclear how much of this reflects the one-off costs of digesting ex-Air Berlin capacity. The valuation may appear reasonable, but a lack of profit growth limits our enthusiasm. We cut our SOTP-based target price to €24.50 from €28, and our recommendation remains HOLD.
02 May 18
Yields collapsed by double-digits in Q1
Sharply lower yields in both Network and Point-to-Point have contributed to very poor profit numbers. Management also blames IFRS 15 for the poor revenue number, but this had no impact on earnings. IFRS 15 now requires gross revenue generated with passenger fees to be netted against the fees Lufthansa has to pay. This reduced revenue by a good €480m. On the other hand, it was positively impacted by the re-classification of other income into revenue (+€87m).
26 Apr 18
LIBERUM: Lufthansa - Q1 results broadly in line, FY guidance unchanged
A non-material miss in the seasonally weakest quarter. The group performance was somewhat held back by Eurowings, which incurred oneoff integration costs associated with ex-Air Berlin capacity. The unit revenue improvement was modest, as guided, while ex-fuel unit costs at the Network Airline division were at the better end of the FY target range of a 1-2% reduction. FY guidance is unchanged overall, with a slight reduction in planned capacity growth and a slight improvement in fuel guidance, also helped by US dollar weakness. Our recommendation remains HOLD with a €28 TP based on our SOTP valuation.
26 Apr 18
Air Berlin impact less positive than we had thought
Revenue and operating earnings were very much as expected in 2017, but net earnings were clearly lower. For the current year, investors have to remember that any further gain from pension settlements is not in the pipeline (€661m benefit in 2016 and €582m in 2017) and the new entrants to the German airline market have started competing in late 2017.
15 Mar 18
LIBERUM: Lufthansa - FY results slightly ahead, 2018E guidance mixed
The 2017 results were slightly ahead of consensus. The 70% improvement in Adjusted EBIT was driven by a strong passenger revenue environment and a dramatic turnaround in Cargo. The outlook is mixed, with management's first profit guidance pointing to a slight fall in Adjusted EBIT (marginally light of consensus) but a slightly positive unit revenue outlook for H1 and flat for the FY (unchanged) potentially supportive for sentiment. We see consensus estimates changing little. Our recommendation remains HOLD with a €28 SOTP-based target price.
15 Mar 18
Passenger number up by 13% in February
The total reached 8.79m in the last month which brought the ytd number to 17.47m (+12%). The two-months break-down between network airlines and point-to-point airlines was +6.1% to 13.0m and +31% to 4.46m, respectively. Both load factors were up in February (+0.8pp to 75.9% and +3.6pp to 77.6%), but it was down for network airlines through to February (-0.2pp to 75.8%; point-to-point: +3.7pp to 76.2%). Demand for cargo transportation was also up which resulted in a FLF of 71.1% (+0.2pp) in February and 68.5% (+0.4pp) in the first two months. Last month’s SLF of the network airlines has hardly changed on European destinations (+0.1pp) and to/from the Americas (+0.4pp), whereas the improvement was rather strong to/from APAC (+1.5pp) and Middle East/Africa (+3.0pp). Point-to-point airlines continued to achieve strong improvements on short-haul flights (+6.4pp), whereas demand and offer were not matched on long-haul flights (-0.7pp).
09 Mar 18
Passenger number +10% in January
The total number increased to 8.7m, of whom 6.54m (+5.4%) were transported by the group’s network airlines and the other 2.15m (+27%) by the budget airlines. Network airlines saw the SLF falling by 1.1pp to 75.7% whereas it was up by 3.6pp to 74.8% at the point-to-point airlines. Lufthansa had increased its offered seat-kilometres by 8.0% while demand was only up by 7.4%. Simultaneously, the consolidated FLF was up by 0.9pp to 66.3%. Network airlines’ SLF fell on destinations within Europe (-1.3pp to 66.2%) and to/from APAC (-4.2pp to 80.4%), but was about unchanged to/from Americas (+0.1pp to 78.8%), and up to/from Middle East/Africa (+3.0pp to 78.4%). Budget airlines improved the SLF on short destinations (+5.4% to 69.2%) and on long-haul flights (+1.4pp to 82.8%).
09 Feb 18
Passenger numbers +19% in 2017
Thanks to the expansion of its budget airline and the bankruptcy of Air Berlin, Lufthansa increased its number of passengers to more than 130m (+20% to 9.34m in December alone). The group’s legacy airlines saw their passenger numbers rise by almost 7% to 97.4m and the budget airlines by 77% to 32.6m. We had expected the group’s number of passengers to be just below 130m. As demand continued to be stronger than capacity, the consolidated SLF increased by 1.8pp to 80.9%. This ratio increased by 2.1pp to 81.1% for the network airlines and by 0.3pp to 79.9% for the low-cost carriers. Lufthansa, SWISS and AUA achieved disproportionate passenger growth rates on destinations to/from the Middle East/Africa (+14% to 4.81m) and on European destinations (+6.9% to 74.55m) whereas the strongest SLF improvement was achieved on flights to/from APAC (+3.3pp to 84.3%). Simultaneously, Eurowings and Brussels Airlines saw passenger growth of 69% to 30.0m on short-haul flights (i.e. European destinations) and +323% to 2.6m on long-haul flights. Their SLFs were up by 1.7pp to 78.8% in Europe but down by 8.8% to 82.0% on long-haul flights. At the same time, Lufthansa’s Logistics division benefited from rapidly-rising world trade. Demand was up by 7.4% whereas capacity was increased by 3.3%. As a result, the FLF was up by 2.7pp to 69.3%. This strong demand increase is the reason why our current 2017 EBIT margin forecast is the highest since 2011.
10 Jan 18
EasyJet’s competition on inner-German destinations has started
Lufthansa’s monopoly pricing ability is ending now that easyJet is starting to operate inner-German flights. Berlin is expected to become this carrier’s second most important hub after London. It believes that it can grab a market share of almost 50% in Berlin which handled 33m passengers in 2016.
07 Jan 18
Niki takeover abandoned
Lufthansa has decided not to acquire Niki, a subsidiary of Air Berlin. According to Lufthansa, the EU cartel office has given indications that it will not allow the German carrier to increase its market position further. Consequently, Niki has applied for bankruptcy procedures. It remains to be seen whether other investors (including founder Niki Lauda) will jump in. Lufthansa has already provided bridge financing to Niki and this ‘loan’ is, in the case of final bankruptcy, unlikely to be repaid. Management now states that the remaining ‘purchase price’ will be used to expand Eurowings’ capacities in Niki’s markets, which is flying tourists from Germany and Austria to destinations around the Mediterranean Sea. However, to do so, Eurowings needs the slots and it will receive these only under the condition that Niki terminates its existence. Lufthansa’s management possibly made the mistake of raising prices immediately after Air Berlin declared its bankruptcy. This has been a strong indication that the new Lufthansa monopoly is unacceptable to the cartel authorities and these clearly prefer other airlines (like easyJet) to acquire the jets, crews, and slots of Air Berlin and Niki.
14 Dec 17
Pilots agree on new payment and pension contract
A final wage and pension settlement with pilots has been approved by the union which will result in lower pension obligations and a higher 2017 EBIT number. We had incorporated this when Lufthansa and the union agreed on this in March 2017.
14 Dec 17
Passenger number continued skyrocketing in November
The passenger growth number was superb in both November and ytd, but the point-to-point airlines (i.e. the group’s budget airlines) have to improve their capacity management considerably as the SLF has improved only slightly on short-haul flights and collapsed on long-haul flights. With an SLF of just above 80%, it is lagging the rates of clearly more than 90% achieved by peers such as Ryanair and easyJet.
12 Dec 17
Lufthansa increases its offer by 700,000 seats during the winter flight schedule
To cope with high demand on destinations between German airports and Vienna as well as Zürich, the carrier is increasing its offer and the number of flights. These additional flights will be offered by the hub airlines and not by the point-to-point airline Eurowings. This is in response to the Air Berlin bankruptcy and it is not (yet) the result of it having been granted the majority of Air Berlin’s aircraft and slots. This takeover has to get EU cartel office approval before Lufthansa can start operating these jets and crews. A large number of additional flights will connect Berlin with the group’s hubs in Frankfurt, Munich, Zürich (SWISS) and Vienna (Austrian Airlines). In addition, Düsseldorf will get more flights to compensate for the disappearance of Air Berlin. To offer these additional capacities, the group is reactivating operational reserves (i.e. idled aircraft will be re-used again), deploying new aircraft, and has engaged in new wet-lease agreements for other airlines’ aircraft and crews. Simultaneously, it intends to cancel flights on less frequent routes. We are currently projecting the number of passengers rising by 18% in 2017 (+17.5% in 9M17) and by another 10% in 2018. Simultaneously, the demand for seat-kilometres is expected to increase by 15% this year (+14.6% in 9M17) and by almost 8% next year. As an overwhelming share of the additional demand is on inner-German and European destinations, the seat-kilometre growth is lower than the passenger growth number.
29 Nov 17
Cartel offices investigate
Whereas the EU cartel authority is looking into the deal between Lufthansa and Air Berlin, the German cartel office is looking at Lufthansa’s pricing policy of the last few weeks. Lufthansa’s takeover of Air Berlin jets is being investigated by the EU authorities as this leads to an almost monopolistic position for the German carrier in its home market and beyond. As a result, these aircraft are currently idle and cannot be used for the transportation of passengers. As demand for flights has only marginally fallen (some passengers have gone to Deutsche Bahn) but the number of aircraft seats is sharply down (by apparently 60,000 per day on inner-German flights), Lufthansa has raised prices. According to consumer protection agencies, prices on some destinations have increased by 30%. The German cartel office has asked Lufthansa to open its books. Whether it will be forced to reduce prices remains to be seen, but it is believed that once the EU authorities allow Lufthansa to take Air Berlin’s aircraft into its fleet, prices will fall again.
27 Nov 17
Passenger number +17% in October and ytd
The numbers reached 12.19m in the last month and more than 110m ytd. Our current projections are based on a full-year increase of 18%, which is ambitious but possible. The growth continues to come from point-to-point airlines (i.e. budget) which saw the passenger number rising by 76% to 3.23m in the last month and 76% to 27.77m ytd. Capacity management still has to be improved which is indicated by the SLF which fell by 2.7pp to 80.6% in October and was unchanged at 80.4% through October. Network airlines delivered growth of 4.1% (to 8.96m) and 5.6% (to 82.85m), respectively. Capacity management was better in this segment which resulted in an SLF increase of 0.8pp to 81.6% in October and of 2.2pp to 81.6% ytd. The FLF also improved (+0.9pp to 70.9% in October and +3.1pp to 69.0% ytd). The more moderate October SLF improvement is the result of a fall on destinations to the Americas (-0.3% to 83.9% but +1.5pp to 83.4% ytd) and within Europe (+0.6pp to 78.2% but +1.9pp to 77.1% ytd).
10 Nov 17
9M17 revenue and EBIT should have been higher
Consolidated revenue was up by 12% to €26.8bn as the number of passengers increased by 17% to 98.4m and sold ton-kilometres were up by 11%. As a result, EBIT increased by 46% (when we exclude last year’s €661m gain from the pension settlement with crew members) to €2.44bn and net earnings reached €1.85bn. Last year’s net profit number of €1.85bn was also boosted by the aforementioned gain, but we do not have the exact number after income tax. We had expected revenue of just above €27bn, EBIT of €2.63bn, and net earnings of €1.76bn, i.e. Lufthansa’s numbers are not dramatically different from what we had anticipated.
25 Oct 17
Lufthansa intends to take parts of restructured Alitalia
Similar to its takeover of parts of bankrupt Air Berlin, it intends to take over some of the Italian carrier’s global net work traffic and European and domestic point-to-point business. Management has asked the commissioners to maintain confidentiality regarding the details of the offer.
17 Oct 17
Details of the Air Berlin "takeover"
Lufthansa takes both Niki and Walter which operate a total of some 50 planes and it will also take another 30 jets from Air Berlin, i.e. the total is believed to be 80 aircraft. These planes are not owned but leased. The purchase price for the respective slots is believed to amount to €210m. Assuming each jet comes with five slots per day (i.e. an average of five arrivals and takeoffs per day for inner-German and European flights), the price per slot is some €0.5m.
13 Oct 17
New (final?) details of the contract with its pilots
Preliminary agreements signed in March have now been finalised, but still need the agreement of the pilots’ union Vereinigung Cockpit. The details are: Salaries will be increased by a total of 10.3% retroactively from May 2012 through to June 2022 plus an additional one-off payment of 1.8x monthly salary. The pension system is changed from a defined benefit to a defined contribution plan. The early retirement age will be reduced step by step from currently 58 to 60 through to 2021. In addition, the carrier will equip at least 325 of its jets with company pilots that fall under this new contract. In addition, it will hire more than 700 young pilots and 600 will be promoted to captains.
11 Oct 17
The passenger number continues skyrocketing
It was up by almost 18% and reached 12.68m in September which brought the ytd number to 98.4m, an increase of 17.5%. Our current 2017 projections see the full-year number rising by 15%, i.e. this number might be slightly too low, but we need to raise our numbers for the next two years. While the network airlines (i.e. Lufthansa, Swiss and AUA) saw an increase of 5.1% to 9.33m in September and 5.8% to 73.89m ytd, the point-to-point airlines (i.e. Eurowings and Brussels Airlines) delivered the following respective numbers: +77% to 3.36m and +76% to 24.54m. As demand (+12.9%) continued to increase faster than the offer (+11%), the SLF was up by 1.4pp to 83.8% in the last month and 2.1pp to 81.4% in 9M17. Network airlines saw the number of passengers rising to/from all destinations, except for the Americas. However, thanks to a good capacity management, the SLFs were up everywhere. On the other hand, point-to-point airlines saw a 3.0pp SLF improvement to 85.6% on short-haul flights (+1.4pp to 79.1% ytd), but the SLFs were down on long-haul flights by 8.8pp to 80.9% last month and 8.9pp to 83.0 ytd. The cargo business continued doing well. Again, demand increased faster than the offer which resulted in a 2.7pp FLF improvement to 68.7% in September and 3.4pp to 68.7% ytd.
11 Oct 17
Lufthansa likely to get the bulk of Air Berlin
Offers for all or ‘flying’ parts of Air Berlin had to be placed by last Friday and first indications from the creditors suggest that Lufthansa will be their first choice for the company’s aircraft and slots. easyJet comes second and Condor third. Offers for Technics will be accepted until 6 October. Condor (owned by Thomas Cook) is expected to be the only competitor for Air Berlin’s inter-continental jets and slots while easyJet seems to be concentrating on the slots in Berlin. Whether all remaining aircraft, including those of Niki, will go to Lufthansa (i.e. to Eurowings) remains to be seen. A first indication of who is possibly getting what is expected to be announced on 25 September, i.e. next Monday.
22 Sep 17
Superior passenger growth in August
This number increased by more than 17% to 12.54m in the last month and the ytd number was also up by more than 17% to 85.5m. While Network Airlines saw passenger numbers rising by 4.8% to 9.22m and 5.6% to 64.4m, the Point-to-Point Airlines delivered respective numbers of +76% to 3.32m and +76% to 21.19m. Thanks to a further improved capacity policy, Network Airlines increased the SLF by 1.4pp to 85.8% in August and by 2.4pp to 81.3% ytd. On the other hand, Lufthansa’s budget airlines saw their SLF falling slightly by 0.1pp to 85.7% in August but increasing by 0.3pp to 79.8% ytd. Except for APAC (-0.1pp to 88.4%), the incumbent airlines achieved higher SLFs to/from all destinations in August while all ytd SLFs were up. The sharpest passenger growth was experienced on destinations to/from Africa/Middle East. The budget airlines’ growth stemmed from both short-haul (passenger number +67% to 3.07 in August and +67% to 19.51m ytd) and long-haul flights (+400% to 0.26m and +355% to 1.68m, respectively). These numbers are impacted by new consolidations (i.e. Brussels Airlines) and by new aircraft and crews leased from Air Berlin. Finally, Logistics continued doing well. Revenue cargo kilometres were up by 10% while the offer was increased by ‘only’ 2.3% in the last month (the respective ytd numbers were +8.2% and +2.8%). Consequently, the FLFs increased by 4.5pp to 66.4% and 3.5pp to 68.7%. Management stated that the pricing environment was positive when currency movements are excluded. However, we see this as not having an overall positive impact on the consolidated accounts as the number of passengers on budget flights has increased disproportionately, and these are paying ticket prices that are some 50% lower than those charged by the Network Airlines.
11 Sep 17
Air Berlin goes into receivership
Etihad has terminated its financial support for the ailing airline which forced management to ask for creditor protection. The German government has granted a €150m loan guarantee that will allow Air Berlin to operate until the end of November. This bridging loan will be repaid first once the carrier has sold its assets, in particular its slots not only in Germany but also at other European airports.
15 Aug 17
Most of the carrier’s H1 numbers were very good
The group increased revenue by 13% to almost €17bn, while EBIT was up by 99% to €1.03bn and net earnings by 57% to €672m. Whereas the revenue number was only marginally higher than our forecast of €16.4bn, the profit numbers clearly exceeded our expectations.
02 Aug 17
Higher than expected H1 17 profit numbers and full-year guidance raised
Lufthansa’s preliminary H1 17 numbers show revenue growth of some 13% to €17bn (we had expected €16.4bn) and ‘adjusted’ EBIT has almost doubled to €1.04bn. Higher ticket prices combined with lower costs (excluding kerosene) have resulted in this higher than expected profit number. This has allowed the Passengers division to increase its ‘adjusted’ EBIT by 93% to €680m. The other divisions increased their combined profit contribution by 105% to €362m. Instead of an ‘adjusted’ EBIT number slightly below last year’s, it now sees it increasing in 2017. However, the rate of rise is likely to be much more moderate as H2 currency-adjusted’ ticket prices are expected to fall compared to H2 16. Simultaneously, all costs are expected to be lower than last year’s.
18 Jul 17
Strong passenger growth and higher load factors in June
The total number of passengers was up by 18% to 11.98m in June which brought the H1 number to marginally less than 60m, an increase of 17%. The group’s Network Airlines saw its respective numbers increasing by 5.1% to 8.82m and 5.9% to 45.5m, i.e. the aforementioned enormous growth rates stemmed overwhelmingly from the Point-to-Point Airlines (+79% to 3.16m and +76% to 14.5m). With the exception of long-haul flights of the Point-to-Point Airlines (the SLF fell by 1.4pp to 80.8% in June and by 9.3pp to 81.9% ytd), all other destinations delivered higher load factors. This is also true for the Logistics division (+3.3% to 68.3% and +2.7pp to 69.0%). The Lufthansa brand saw its passenger growth number moderating (+2.7% to 5.97m in the last month and +4.8% to 31.2m ytd) whereas both SWISS and AUA continued delivering strong growth numbers.
11 Jul 17
Passenger number again strongly up in May
The group’s total passenger number was up by 19% to 11.6m in the last month and 17% to 48.0m ytd. However, the split between the growth rates of incumbent and budget airlines was dramatic. Network airlines saw their passenger numbers rising by 6.7% to 8.48m and 6.1% to 36.66m, respectively. As sold seat-kilometres increased more strongly than the offer the SLF increased by 3.5pp to 79.4% and 3.0pp to 78.5%. Their SLFs were up in both periods and to all destinations with the strongest growth to/from APAC followed by the Americas. Point-to-point airlines saw their passenger numbers rising by 74% to 3.02m in May and 75% to 11.35m ytd. However, the May offer was increased much faster than demand. Consequently, their SLF fell by 3.3pp to 76.8% in the last month but it was up by 0.6pp to 76.5% ytd. In fact, it is the long-distance that causes the problem. While the inter-continental passenger number increased by more than 400% to 199,000 and by more than 300% to 978,000, respectively, the SLFs fell by 10.3pp to 77.8% and 10.9pp to 82.1%. As in the months before, the Logistics division continued to benefit from rising demand. Demand continued rising faster than the offer which allowed the FLF to improve by 4.0pp to 67.8% in May and 2.9pp to 69.5% ytd.
12 Jun 17
Passenger number up by 25% in April
The carrier saw the passenger number rising to 11.16m in the last month and by 17% to 36.4m ytd. While the Point-to-Point operation (i.e. LCC) increased its numbers by 93% to 2.78m and 76% to 8.33m, respectively, the Network operation (i.e. Lufthansa’s incumbent brands) delivered 12% growth to 8.39m in the last month and 5.9% to 28.07m ytd. The group’s SLF was up to/from all destinations and at all its brands. In fact, both Point-to-Point and Network increased their respective load factors by 6.2pp to 81.9% and 82.4% in April. Destination-wise, the strongest SLF improvements were achieved on American (+7.0pp to 85.2%) and Asian/Pacific routes (+6.6pp to 84.3%). Cargo demand also increased stronger than the offer (+6.0% and +3.8% in April and +7.7% and +3.6% ytd). Consequently, the respective FLF improved by 1.4pp to 69.4% and 2.6pp to 70.0%.
10 May 17
Fraport and Lufthansa agree on new fee structure
According to Lufthansa, the two companies are well on the way to solving the dispute on the fee discounts Fraport is offering to Ryanair. The discounts offered to Ryanair and the regular fees Lufthansa pays apparently translate into costs for the German carrier that are about a triple-digit million euros higher than Ryanair would pay on the same destinations. The two companies have not yet signed and sealed a new contract. Consequently, it is not known whether Lufthansa gets a discount as well or whether the discounts offered to Ryanair will be lower. In the first instance, other carriers flying into/out of Frankfurt might also ask for a discount. This would clearly translate into a disaster for Fraport and its management.
07 May 17
Marginal operating profit but a new net loss in Q1 17
The carrier increased revenue by 11% to almost €7.7bn and generated, albeit a small, operating profit of €16m (vs. a loss of €49m last year). However, the net loss of €68m was higher than last year’s €8m. Logistics and Technics contributed to the operating profit improvement while the losses of the Passengers divisions were higher (€186m compared to €86m). In fact, the Network airlines (i.e. Lufthansa, Swiss, AUA) incurred a loss of €53m this year compared to a profit of €38m in Q1 16. Lufthansa’s revenue number is higher than we had anticipated but the profit numbers are about in line.
27 Apr 17
Lufthansa achieved a sharp rise in passenger numbers during March
The group’s passenger numbers increased by 14% to 9.59m in the last month, taking the Q1 number to 25.2m, an increase of 13%. Eurowings, the low-cost carrier, saw its numbers rising by 66% to 2.16m and 68% to 5.55m, respectively. Simultaneously, the incumbent brands saw their numbers increasing by 4.5% to 7.44m and 3.5% to 19.68m. The group achieved a slight SLF improvement in both the last month (+0.8pp to 77.2%) and Q1 (+1.2pp to 76.1%. This was exclusively achieved by the incumbent brands whereas Eurowings saw its SLF falling by 1.5pp to 76.3% in March and by 0.1pp to 73.9% in Q1 although demand for sold ton-kilometers more than doubled in both periods. However, capacity increased even more strongly. The network airlines, as Lufthansa calls its incumbent brands, achieved higher SLFs on all destinations in the last month while it was down marginally to/from the Americas in Q1. The strongest improvement was achieved to/from APAC followed by Middle East/Africa and Europe. The Logistics division has also seen an increase in demand. Lufthansa increased capacity by 6.7% in the last month while demand increased by 13%. Consequently, the FLF improved by 4.3pp to 73.8%. The respective Q1 numbers were +3.6%, +8.3%, and +3.0pp to 70.2%.
11 Apr 17
2017 earnings just short of our expectations
Lufthansa’s consolidated revenue fell by 1.2% to €31.7bn in 2016. However, earnings were sharply up as the group benefited from the pension settlement with UFO members, i.e. the crews (excluding the pilots). As a result of this one-time gain of €661m, EBIT increased by 36% to €2.28bn, otherwise it would have fallen by 3.7% to €1.61bn. Stated net earnings were up by 4.6% to €1.78bn which allows management to propose an unchanged dividend of €0.50, whereas we had expected a cut to €0.25.
16 Mar 17
Early 2017 was superb
The group’s number of passengers was up by 12.4% to 7.77m in February which brought the ytd number to 15.64m, an increase of 12.5%. These growth rates were overwhelmingly achieved by Eurowings (the budget brand) which saw its passenger numbers rising by 70% to 1.70m and 69% to 3.39m, respectively. However, brandname airlines (i.e. Lufthansa, Swiss, and AUA) also saw positive growth rates (+2.6% to 6.06m and +2.9% to 12.25m).
10 Mar 17
Lufthansa and its pilots have settled the pay dispute, but nothing else
The two parties have agreed to the result of the mediation process which translates into a wage increase, in four steps, of 8.7%. In addition, a one-off payment of €30m has been agreed which gives each of the airlines 5,400 pilots another €5,000-6,000. However, the parties involved have not agreed on anything else, i.e. not on a new pension scheme and the early retirement scheme. According to management, the pay deal will cost the carrier some €85m annually and the contract expires at the end of 2019. As the pilots intend to negotiate each open point of discussion separately, they are likely to threaten with new strike action in the not too distant future. Management has reacted by announcing its intention to man 40 new aircraft with pilots who are not part of the Lufthansa contract. It is unclear whether these are new aircraft or whether these will replace old jets.
15 Feb 17
Superb start into the new year, by Eurowings
The number of passengers increased by 13% to 7.88m in January. As demand (+10.5%) increased more strongly than the offer (+9.9%), the SLF was up by 0.4pp to 76.0%. Cargo freight demand (+4.9%) was also up more strongly than the offer (+1.7%) which resulted in a 2.0pp improvement in the FLF to 65.9%. Lufthansa’s legacy airlines (i.e. Lufthansa, SWISS and Austrian) showed single-digit passenger increases with the strongest growth to Middle East/Africa (+6.3%). The consolidated group’s passenger number was up by double-digits as the budget brand (i.e. Eurowings) saw the number rising by 68% to 1.69m. In spite of this, this SLF was down by 0.9pp to 71.2% as the offer was up by 115% while demand increased by ‘only’ 112%. On the other hand, the legacy airlines achieved rising SLFs to all destinations except for the Americas (-1.7pp to 78.7%) with the strongest growth achieved to/from APAC (+4.0% to 84.6%).
09 Feb 17
December was a good month in volume terms
The number of passengers was up by 5.9% to 7.79m in the last month (+1.8% to 109.7m in the full-year). As demand growth (+7.3%) outpaced the offer (+5.4%), the SLF improved by 1.3pp to 77.7%. The respective full-year numbers were +2.8%, +4.6% thus leading to an SLF of 79.1% (-1.4pp). Simultaneously, cargo demand increased by 8.3% while the offer was up by only 3.5% in December, i.e. the FLF improved by 3.1pp to 70.3%. The respective full-year numbers were +1.4% and +1.0% thus leading to an FLF of 66.6% (+0.3pp). The hub airlines’ (i.e. Lufthansa, SWISS, and AUA) traffic to/from APAC was only moderately up (the passenger number increased by 1.3% in December and was down by 2.7% in the full-year), it rose strongly to/from the Middle East/Africa (+10.5% but -1.7%, respectively) and to/from the Americas (+6.2% and +4.1%). Demand growth was slightly more subdued within Europe (+4.8% and +0.5%). The SLFs increased to/from all regions in December and to the Middle East/Africa in the full-year. However, all other destinations experienced falling full-year SLFs. Lufthansa’s budget airline Eurowings attracted a total of 18.43m passengers in 2016 (c. 17% of the total). Compared to 2015, this was an increase of 8.8%. However, Eurowings continued suffering falling SLFs in the last month and in the full-year and on both short- and long-haul flights.
10 Jan 17
Management continues to sit between two stools
The company and the pilots have agreed to a mediation process to solve finally their dispute on pay and pensions. This process is scheduled up to the end of January, i.e. the pilots will not strike during the mediation. On the other hand, the conflict has escalated with Eurowings crew members and their Ufo union. While other Eurowings employees, members of the Verdi union, have settled their dispute earlier this month, this second union has not agreed to these terms. Ufo believes that the Verdi contract is unfavourable. Consequently, Ufo threatens with new strike action.
18 Dec 16
November was a good month, in volume terms
Although Lufthansa suffered from strike action in the last month (as it did in November 2015), the number of passengers increased by 5.9% to 7.63m, which brought the ytd number to 101.9m, an increase of 1.6%. As demand increased by 10.1% while the offer was up by ‘only’ 9.3%, last month’s SLF improved by 0.5pp to 75.8%. The respective ytd numbers were +2.5%, +4.5%, and -1.6pp to 79.2%. However, management continues to complain about ‘significantly falling’ yields on a currency-adjusted basis. The development was similar in the Logistics division. Demand was up by 2.8% while the offer was increased by only 0.4%. As a result, the November FLF improved by 1.7pp to 71.0%. The ytd FLF was unchanged at 66.2% as both demand and offer were up by 0.8%. Lufthansa’s November SLFs improved to/from European and Middle Eastern/African destinations but fell to/from the Americas and APAC and for the first eleven months it was only up to/from the Middle East/Africa.
09 Dec 16
In-house fighting starts today
Not only the pilots will demonstrate in front of Lufthansa’s headquarters but crew members as well. However, they have opposite intentions. While the pilots continue to strike for their goals (i.e. pay, pension, etc.), crew members have settled their negotiations and will demonstrate against the pilots. This is something new in German corporate history. Whether this will bring the pilots back to the negotiation table remains to be seen.
30 Nov 16
Passenger number up by 3.1% in October
This number reached almost 10.5m in the last month which brought the ytd number to 94.9m, an increase of 1.1%. We expect a growth rate of 0.7% for the full-year, i.e. the number can fall by 1.6% to 13.52m in the last two months and our projection will still be reached. However, the strongest growth rate was achieved by Eurowings (the budget airline). Its numbers were up by 12% to 1.84m in the last month and by 8.7% to 15.8m ytd. In addition, the passenger numbers were down to/from both APAC (-5.1% to 569,000) and the Middle East/Africa (-1.1% to 369,000). On one hand, we believe that Eurowings is not generating high profits (if at all) while, on the other, these two destinations are believed to be disproportionately profitable. As in the previous months, management’s capacity management continues to be insufficient. Offered seat-kilometres were up by 4.5% in the last month (+4.1% ytd) while demand increased by 3.6% (and 1.9%). As a result, the SLF fell by 0.7pp to 80.7% in October and by 1.7pp to 79.4% ytd. However, capacity management is clearly improving in the Logistics division. Demand increased by 4.8% while the offer was up by only 0.2%. Consequently, the FLF improved by 3.0pp to 69.3% in October. The respective ytd numbers were 0.3%, +0.8%, and -0.3pp to 65.6%.
09 Nov 16
€713m gain from the pension settlement with Ufo
Lufthansa’s revenue continued to fall in Q3 (-1.2% to €8.83bn) bringing the 9M number to €23.9bn, a decrease of 1.8%. Simultaneously, EBIT increased by 51% to €1.81bn in the last quarter and by 40% to €2.33bn ytd. The respective net profit numbers were +79% to €1.42bn and +5.9% to €1.85bn. At a glance, the revenue number was very much in-line with our expectation while the profit numbers were considerably higher. However, the latter benefited from the wage and pension settlement Lufthansa has achieved with its own but not with Eurowing’s cabin crews. This has translated into a one-time benefit of €713m in Q3.
02 Nov 16
9M16 numbers slightly better than expected
After releasing a profit warning for Q3 16 on 21 July, management’s preliminary numbers are better. As short-term bookings by business passengers were higher than anticipated then, Lufthansa’s 9M revenue came in at €23.9bn (-1.7%), whereas we had expected €23.72bn. According to the ad-hoc release, adjusted EBIT fell by 1% to €1.69bn.
20 Oct 16
Ufo threatens with new strike action
Lufthansa and its cabin crew union Ufo had settled their dispute in July. However, the negotiations for the Eurowings crew members were still continuing. As these have not resulted in a mutual agreement, the union is now threatening with strike action. Eurowings is Lufthansa’s budget airline for short- and medium- and a few long-haul flight destinations. Its employees are not part of the Lufthansa collective agreement and their contract terms are different from the parent company’s. It remains to be seen how many aircraft will be grounded during the next days and weeks.
20 Oct 16
Passenger number up by 5.2% in September
The number reached almost 10.8m in the last month which brought the ytd number to 83.9m, an increase of 1.1%. However, as the offer of seat-kilometres was raised by 6.6% but demand was up by only 5.7%, the SLF fell by 0.8pp to 82.4%. The respective ytd numbers were +4.1%, +1.8%, and -1.8pp to 79.3%. The passenger and sold seat-kilometre growth rates are higher than our projected numbers for the full-year (-3.4% and -0.3%). However, our expected full-year ticket price is ‘only’ 2.9% lower than in 2015 whereas it fell by 3.6% in H1 16. The Logistics division is clearly seeing some improvement. After a H1 16 fall of 3.0% for sold ton-kilometres, it has increased in each of the last three months (+1.6% in July, +0.7% in August, +8.2% in September) and now translates into a marginal ytd fall of only 0.4%. Our full-year volume sales projection is -2.2% and the price per sold ton-kilometre is expected to fall by a good 9%. However, the yield fell by 17% in H1 16, i.e. our volume might be too low but we might be too optimistic on the price development. The number of passengers continued falling to/from APAC (-1.8%) in the last month, but was up to/from all other destinations. The sharpest rise was experienced on trans-Atlantic flights (+8.2%). The ytd passenger numbers, however, continue to be down to all destinations except for the Americas.
11 Oct 16
Lufthansa acquires remaining majority stake in Brussels Airlines
The remaining 55% is expected to be acquired in early 2017. Subsequently, this carrier with around 50 jets will be fully consolidated whereas it was consolidated at equity in the past. The contribution was a negative €10m in 2014 and a positive €15m in 2015. The book value in Lufthansa’s accounts was zero at the end of the last two fiscal years. These activities will be integrated into Eurowings, Lufthansa’s budget airline. As Eurowings will also lease some 40 jets and crews from Air Berlin, its aircraft fleet will double to around 160. At the end of 2015, Lufthansa (including Eurowings, SWISS and AUA) operated a total of 600 aircraft, 16 of these were financed via operating lease contracts and another 40 via finance leases. Including Brussels Airlines and the takeover of Air Berlin jets, this number will increase to almost 700 during the course of 2017.
29 Sep 16
One airline less?
It seems as if Etihad is terminating or at least reducing its financial support for Air Berlin in which it controls some 30% of the shares. Based on speculations, Lufthansa (via its Eurowings budget brand) and TUI fly will take over more of Air Berlin’s slots and jets. Whether this will eventually result in the extinction of Air Berlin remains to be seen but it is more likely that Air Berlin will exclusively serve as a feeder of passengers to Etihad’s hub in Abu Dhabi. TUI fly is already operating 14 jets for Air Berlin and Eurowings has just recently acquired some. It is believed that it will eventually acquire 40 jets including the crews via operating lease contracts.
27 Sep 16
Lufthansa and Air China go beyond code-sharing agreement
Both carriers are members of Star Alliance and they now intend to form a joint-venture in China. This joint-venture is expected to start operating with next year’s summer flight schedule. It will compete against a similar joint-venture which has been set up between Air France-KLM and China Southern as well as China Eastern but it will also try to compete more successfully against Middle Eastern airlines. Lufthansa’s management believes that the joint-venture will make it easier for passengers to connect to inner-Chinese flights but it is also believed that ticket prices might go up as Air China is currently offering ticket prices clearly below those of Lufthansa.
21 Sep 16
Passengers and load factor down in August
The number of passengers fell by 1.3% to 10.7m in the last month which brought the ytd number to 73.2m, an increase of 0.5%. As the offer of seat-kilometres was increased by 2.1% but demand fell by 1.4%, the SLF was down by 3.0pp to 84.7%. It was down by 2.0pp to 78.9% through to August. The Logistics division did better. Offer for freight-kilometres increased by 0.6% while demand was up by 0.7%. Consequently, the FLF improved by 0.1pp to 61.8% (ytd: -1.3pp to 65.0%). Except for American destinations, the number of passengers was down to all other destinations with those flying to/from APAC down by 8.3% and those to/from Middle East/Africa by 11.4%. The group’s SLF fell to/from all destinations with the sharpest falls to/from the Americas (-3.3pp to 85.4%) and APAC (-3.2pp to 88.6%9. Logistics seems to be experiencing some stabilisation on a low level. In fact, demand for freight-kilometres was up in Europe (+1.6%) and to/from APAC (+4.2%). Both of these regions are also showing increased demand for the first eight months. It is worth mentioning that the number of passengers flying Lufthansa jets has fallen by 5% to 5.85m in the last month (-1.9% to 41.7m ytd) but those flying SWISS, AUA, and Eurowings have increased in both the last month and through to August. In spite of this, all these brands suffered lower SLFs in the last month.
09 Sep 16
No new deal with pilots
The negotiations between management and the pilots have been terminated. According to Lufthansa, the two parties have agreed on some issues, but not on all. As a result, the negotiations have been terminated. This is not expected to lead to immediate strike action by the pilots, but this cannot be excluded for the upcoming months. Although mutual agreements had been found with both ground staff and crew members, this has not translated into any relief for the group’s pension problem. Instead, pension provisions have increased by more than €4bn to almost €11bn in H1 16.
14 Aug 16
Passenger number +1.8% in July
The number of passengers was up in the last month and this contradicts management’s earlier statements that pre-bookings for the summer season were poor. The July number of 11.2m passengers has translated into a ytd number of 62.4m, an increase of 0.9%. However, the growth rate for seat-kilometre demand (+2.5%) was insufficient to match the offer (+3.5%). Consequently, the SLF fell by 0.9pp to 86.0% in the last month and by 1.8pp to 78.0% ytd. The FLF development was even more negative. Demand for freight kilometres was up by 1.6% but the offer had been increased by 4.7%. As a result, the FLF fell by 1.9pp to 61.4% in July and by 1.8pp to 65.2% ytd. Interestingly enough, the number of passengers flying to/from the Americas increased by 4.9% to 1.16m in July (+2.7% to 6.19m ytd) while it was down to/from all other destinations. While the number was almost unchanged on European destinations (-0.3% to 7.04m and -0.5% to just below 40m, respectively), the numbers fell to/from both APAC (-4.4% to 649k and -2.8% to 3.73m) and the Middle East/Africa (-2.9% to 401k and -4.3% to 2.4m). Except for the latter destinations, the SLF fell on all other destinations including the Americas (-1.7pp to 87.9% and -3.1pp to 80.5%). It is management’s fault not to match the offer with the demand situation. The only region where it had correctly projected demand was the Middle East/Africa where the SLF was up by 1.8pp to 83.1% in July and by 0.6pp to 74.9% ytd.
09 Aug 16
Management has slashed its 2016 guidance
Not only have pension provisions reached a new all-time high of almost €11bn and shareholders’ funds a new all-time low of €3.5bn, management’s new detailed guidance for the full-year is also showing falling ‘adjusted’ EBIT numbers for both the Passenger and Technics divisions and a loss for Logistics. In fact, H1 numbers were not that poor. However, this is exclusively the result of lower losses in Q1 whereas the Q2 profit numbers are lower than they were a year ago.
02 Aug 16
The current quarter is a disaster
Lufthansa released preliminary H1 16 numbers which are better than a year ago and higher than last year. Nevertheless, management reduces its full-year EBIT guidance from ‘slightly higher‘ to ‘lower than last year’. Management blames the terrorist attacks in Europe for a falling number of long-distance passengers travelling to Europe. As a result, the Passenger division is expected to show considerably lower earnings in Q3 than last year’s €1.1bn. Based on management’s ad-hoc release, this division’s EBIT increased by 77% to €441m in H1 16. In addition to lower passenger numbers, management also blames collapsing yields. On a currency-adjusted basis, these were down by 5.2% in H1 and are expected to fall by 8-9% in H2. Our 2016 EBIT number is slightly lower than €1.6bn and about €100m lower than what the carrier showed for 2015, i.e. we had not trusted management’s optimism in the first place. Consequently, we will hardly amend our projections once final H1 numbers are released on 2 August.
21 Jul 16
Lufthansa and Ufo have finally signed a new deal
A new pay deal and pension contract has been signed with the carrier’s 19,000 cabin crew members and the union also accepts the employment contract for Lufthansa’s budget airline Eurowings. Management believes that the new deal will limit additions to provisions almost immediately but that genuine cost savings will start in 2023. The pay deal shows a 1% salary increase as of 1 October 2016 and another 2% as of January 2018. The pension deal shows a change from a defined benefit to a defined contribution plan that had been negotiated with the group’s 30,000 ground staff in November last year. What remains open is the deal with the pilots.
06 Jul 16
Catering business will be streamlined
As more clients are flying economy, i.e. with less on-board service, Lufthansa intends to reduce the number of catering kitchens (brand name is LSG Sky Chefs). Based on leaked information, the number of kitchens will be reduced from 23 to 7 in Europe and the number of employees by 1,700 from 5,500 in Germany alone. In the past, Catering has shown rather volatile earnings, but these have stabilised during recent years. Divisional profit margins were in the vicinity of 5% until 2014 but the margin fell to 3.6% in 2015 and is likely to fall further this year. As it generates the majority of its business with the carrier’s own airlines and only a relatively small share with other airlines, this profit margin might well be subsidised.
09 Jun 16
May was a disaster
The number of passengers fell by 3.3% to slightly less than 9.7m passengers, which brought the ytd number to just below 41m, an increase of only 0.6%. As management had increased the offer by 2.2% but demand fell by 2.1%, the SLF was down by a stunning 3.4pp to 76.4% (-1.7pp to 75.5% ytd). The development was similar in Logistics. The offer was up by 0.9% but demand fell by 2.9%. Consequently, the FLF fell by 2.5pp to 62.2% (-2.5pp to 65.5% ytd). The May number of passengers was down to/from all destinations with APAC (-9.2%) and Middle East/Africa (-9.4%) having been the week spots. As a result, the SLF also fell to/from all destinations. From January to May the passenger number was also down, except for the Americas.
09 Jun 16
April numbers were poor
The number of passengers fell by 2.1% to 8.95m in the last month which brought the ytd number to 31.3m, an increase of 1.9%. As the offer (for seat-kilometres) continued to increase by 2.1% while demand fell by 0.3%, the SLF was down by 1.8pp to 76.3%. The respective ytd numbers were +5.3%, +3.6%, and -1.2pp to 75.3%. Logistics experienced some improvement in the last month. Demand (in ton-kilometres) increased by 2.5% while the offer was up by 2.0%. As a result, the FLF improved by 0.4pp to 67.2%. The respective ytd numbers were -4.0%, -0.4%, and -2.5pp to 66.4%. Except for traffic across the Atlantic, where the number of passengers was up by 1.1%, all other destinations experienced falling passenger numbers. The sharpest fall occurred to/from the Middle East/Africa (-9.3%) followed by European destinations (-3.3%) and APAC (-2.2%). There are possibly two explanations for the poor April numbers. One is Easter which was in late March in 2016 whereas it was in early April last year. The other is the one-day strike by Ver.di, which affected Fraport and other German airports and resulted in flight cancellations.
11 May 16
Pilots might go on strike, again
Negotiations between management and the Cockpit union have gone nowhere. Management has presented its proposal (lump sum of €12,000 for the years 2012-15 plus a wage increase of 1.2% starting from July 2016 plus another 1.3% from January 2018). This has been rejected by Cockpit. The two partners will again meet on 22 April. The latest information gives no indication of the group’s pension problem, i.e. this seems to be unaddressed up to now. Assuming a mutual agreement cannot be found soon, the pilots are threatening to go on strike again. Our current projections for 2016 do not include any major strike action, i.e. we will need to reduce our revenue and profit forecasts if prolonged strikes reoccur.
17 Apr 16
Strong passenger growth but falling SLF in March and Q1 16
The number of passengers increased by 4.0% to 8.42m in the last month which brought the ytd number to 22.3m (+3.6%). However, management increased the offer by 6.8% while demand was up by ‘only’ 5.4%. Consequently, the SLF fell by 1.0pp to 76.5% in March and by 0.9pp to 74.9% in Q1. The group’s SLF was up to/from Middle Eastern/African destinations in both the last month and ytd. However, it fell to/from all other destinations with APAC having been particularly weak. In fact, the number of passengers to/from these latter destinations was down by 1.5% to 511,000 in March and up by only 0.7% to 1.45m in Q1. Lufthansa’s Logistics division continued suffering strongly. The offer was reduced by 3.8% but demand fell by 10.5%. As a result, the FLF was down by 5.0pp to 66.4% in March and by 3.5pp to 66.1% in Q1.
11 Apr 16
Has Munich Airport subsidised Lufthansa?
The Bavarian Comptroller’s Office accuses the airport of having granted Lufthansa (indirect) subsidies to increase the number of passengers. The higher the passenger number the more pressing is the need for a third runway which is opposed by the City of Munich (23% stakeholder in the airport) but supported by the State of Bavaria (51% stakeholder). The remaining 26% is controlled by the Federal Government. Lufthansa is the airport’s single most important client (53% of the 41m passengers who use this airport). Lufthansa is the co-owner of Munich’s Terminal 2 which is exclusively used by Lufthansa and its Star Alliance partners. The terminal was opened in 2003 and an entirely new satellite attached to it will open this month. According to Süddeutsche Zeitung, which quotes the results of an investigation of the Comptroller’s Office, this terminal extension has been given practically for nothing to Lufthansa. In fact, Lufthansa can use the terminal and the satellite through to 2056 instead of 2036. It remains to be seen whether this investigation will eventually lead to a new contract that will require Lufthansa to pay higher usage fees. It also leaves the question whether the EU will investigate this case of potentially illegal subsidies.
04 Apr 16
Lower than expected 2015 profits but higher dividend
Lufthansa’s revenue was up by 7% to just above €32bn while EBIT and net earnings came in at €1.68bn and €1.7bn, respectively. Based on management’s adjusted 2014 numbers, the former translates into an increase of 68% while the carrier’s 2014 net profit was a mediocre €55m. Based on the above, management proposes a dividend of €0.50. While the revenue number is in line with our projection, the two profit numbers are lower (we had €1.74bn and €1.95bn) whereas the dividend is higher (€0.30). Net earnings included a €673m disposal gain for JetBlue whereas we had included €549m in our numbers.
17 Mar 16
Strong passenger growth in February, but poor offer/demand management
The group saw the number of passengers rising by 4.6% to more than 6.9m in the last month which brought the ytd number to 13.9m, an increase of 3.3%. However, management’s capacity management seems to have lost control. While offered seat-kilometres were up by 8.7%, sold seat-kilometres were up by only 5.9%. As a result, the SLF was down by 1.9pp to 72.3% in the last month and by 0.9pp to 74.0% ytd. There was also a huge discrepancy between the offered and sold freight-kilometres. Consequently, the FLF fell by 5.0pp to 67.7% and 2.7pp to 65.9%, respectively. The carrier achieved the strongest passenger number growth over the Atlantic (+5.1% to 607,000) and to Middle East/Africa (+3.8% to 307,000). In fact, it achieved an SLF increase to/from the latter destinations (+1.2pp to 72.1%) whereas it was down by 1.6pp to 66.6% within Europe, by 1.2pp to 79.8% to APAC, and by 4.5pp to 72.1% to/from the Americas. The group’s budget airlines (under the Eurowings brand) saw their passenger number increasing by 11% to 953,000 in February and by 7.6% to 1.9m ytd. However, these also increased their offer more strongly than demand, i.e. the SLF fell by 1.4pp to 64.5% in the last month and by 1.1pp to 64.3% ytd.
09 Mar 16
Good passenger business, poor logistics business in January
The number of passengers was up by 2.0% to 7.0m in the last month. As both offer and demand for seat-kilometres was up by 4.5%, the SLF was unchanged at 75.6%. Management continued to reduce the offer for ton-kilometres (-1.2%), but demand fell by 2.0%. Consequently, the FLF was down by 0.5pp to 64.0%. The regional passenger distribution for the Lufthansa, SWISS and AUA brands showed good growth to/from the Americas (+2.9% to 742,000) and APAC (+2.4% to 497,000), whereas the growth rates were moderate within Europe (+0.5% to 4.42m) and to/from the Middle East/Africa (+0.4% to 338,000). The SLF was up in APAC (+1.2pp to 80.7%) and Middle East/Africa (+2.3pp to 74.8%) but it fell within Europe (-0.7pp to 65.5%) and the Americas (-2.3pp to 80.3%). Eurowings, the carrier’s budget airline, saw the passenger number rising by about 10% to just above 1m, but the SLF fell by 0.9pp to 64.1%. 95% of the passengers flew within Europe as this brand started its inter-continental business only this year. In fact, it seems Eurowings still has problems fulfilling its flight schedule, i.e. delays on long-distances seem to occur regularly. The group’s FLF was up to/from APAC (+4.1pp to 72.6%) but was down to/from all other regions. In fact, the rate of decline was moderate in Europe (-1.5pp to 49.2%) but much sharper to the Americas (-4.1pp to 61.9%) and Middle East/Africa (-3.7pp to 47.4%).
09 Feb 16
Lufthansa strikes pay deal with crew members
Having settled the pay and pension dispute with its ground staff in November, the carrier has now settled the pay dispute with crew members. They get a one-off €3,000 retroactive payment for 2015 and a wage increase of 2.2% as of January 2016. The mediation process regarding the pension system continues through to the end of June and, until then, the union is not allowed to call a strike. This leaves the pay and pension dispute with the pilots. Now that two unions have either fully (Verdi) or partially (Ufo) agreed on a settlement, it will be difficult for the pilots (Vereinigung Cockpit) not to find an acceptable agreement with management.
24 Jan 16
Mixed picture in December
The number of passengers increased by 2.0% to 7.36m in the last month which brought the full-year number to almost 108m, an increase of 1.6%. We had expected the number to reach 108.2m, but strikes in November prevented this. The number of sold ton-kilometres increased by 3.8% to 15.18bn and by 2.7% to 220.4bn, respectively. We had pencilled in 221.8bn. As management had increased the offer by 5.3% in December, the SLF fell by 1.1pp to 76.4%. For the full-year, Lufthansa shows an SLF improvement of 0.3pp to 80.4%. While the Lufthansa brand (including Eurowings) saw the number of passengers continue to rise disproportionately (+4% to 5.37m in December), both SWISS (-1.9% to 1.27m) and Austrian (-4.5% to 712,000) suffered a fall in their respective passenger numbers. Logistics continued suffering from poor demand. The volume was down by 3.8% to 146,000 tons in December and by 3.1% to 1.86m tons in the full-year. The offer was again increased in the last month but, as demand was down, the FLF fell by 4.3pp to 67.2% and by 3.6pp to 66.3%, respectively. The regional December passenger break-down shows strong growth to/from the Americas (+6.2% to 755,000) and good growth to APAC (+3.6% to 452,000). Simultaneously, the numbers were only moderately up within Europe (+1.5% to 5.82m) and to/from Middle East/Africa (+0.1% to 328,000). In spite of the strong growth to the Americas and APAC, the SLF was down by 1.7pp and 0.6pp to these two destinations. It was also down (by 1.7pp) within Europe but up by 0.8pp to the Middle East/Africa.
12 Jan 16
The €50,000 offer to pilots
Management proposes a one-off payment of €50,000 to each pilot willing to switch jobs from Lufthansa to the budget brand Eurowings. Eurowings’ salaries and pensions are lower than Lufthansa’s and the pilots are offered a three-year trial period. After two years, the pilots have to decide whether they want to stay with Eurowings or move back to Lufthansa. This way, management believes that younger pilots may be willing to switch as they will have better promotion possibilities at Eurowings and this carrier will get experienced Lufthansa pilots. The group opened this opportunity in August of this year and an undisclosed number of pilots have switched. To treat the pilots equally, these employees should also get the premium retroactively. However, this has not yet been negotiated with the pilots’ union.
13 Dec 15
Lufthansa suffered from November's strike action, but December will be much better
The group saw the number of passengers falling by 9% to just above 7.2m in the last month which brought the ytd number to slightly more than 100m, an increase of 1.8%. The strike is reflected in Lufthansa’s passenger number (-12.5% to 5.17m) whereas both SWISS (+1.6% to 1.25m) and Austrian (+1.9% to 0.79m) saw rising numbers. We are expecting the passenger number to increase by about 2% for the full-year and sold seat-kilometres by a good 3%, i.e. the latest numbers suggest that we are marginally on the high side. However, the December 2014 numbers were rather weak as the pilots went on strike then whereas the carrier will not be burdened with strike action in the current month. Therefore, we will not amend our projections now. Although the group reduced its seat-kilometre offer by 9.8%, demand fell by 10.6%. Consequently, the SLF was down by 0.6pp to 75.3% (+0.5pp to 80.8% ytd). The situation remained considerably more dismal in cargo. The offer was reduced by 5.3%, but demand fell by 12%. As a result, the FLF fell by 5.3pp to 69.3% (-3.6pp to 66.2% ytd). Except for destinations to/from the Middle East/Africa, the SLF was down to all other destinations. This load factor is up for the first 11 months in Europe and to APAC, unchanged to the Americas and down by 0.5pp to the Middle East/Africa.
09 Dec 15
Lufthansa has signed first wage agreement for ground staff
The carrier’s ground staff (33,000 employees organised by Verdi, their union) is getting a one-off payment of €2,250 for the months of April through to December 2015 and a salary increase of 2.2% as of January 2016. More importantly, the company has also found a settlement for future pensions. While all existing employees will continue to get a pension based on the current system, new employees that start from January 2016 onward will get a similar pension, but they have to contribute 1% of their salary to the system. Negotiations with both pilots and crew members are continuing. A so-called ‘job summit’ is scheduled for 2 December. All three unions will participate (i.e. Verdi and the two unions representing the ground staff (Ufo) and the pilots (Vereinigung Cockpit)). It remains to be seen whether a mutual agreement can be found.
30 Nov 15
October was again excellent, but what about November and December?
The number of passengers increased by 3.9% to 10.1m in the last month which brought the ytd number to 93.1m, an increase of 2.5%. The carrier increased its seat-kilometre offer by 3.4% in October and by 3.0% ytd, but demand increased faster by 4.5% and 3.7%, respectively. As a result, the SLF was up by 0.9pp to 81.5% and by 0.6pp to 81.2%. The situation is very different in Logistics. Lufthansa increased the ton-kilometre offer by 4.3% in the last month and by 3.1% ytd. However, demand fell by 1.7% and 2.0%, respectively. Consequently, the FLF fell by 4.0pp to 66.0% and by 3.4% to 65.9%. As in the months before, passenger growth was primarily achieved on long-distance flights to the Americas (+4.7% to 954,000 and +4.5% to 9.08m) and to APAC (+5.9% to 599,000 and +5.7% to 5.71m). In addition, the number of passengers flying to/from European destinations increased (+4.1% to 8.15m and +2.0% to 74.4m). On the other hand, the number of passengers to/from Middle Eastern/African destinations fell by 4.8% to 391,000 in October but was up by 1.5% to 3.91m ytd. Except for the latter, all SLFs were up in both the last month and ytd. Lufthansa has done a good job through to October, but the strikes by the cabin crews, which started this week, will most probably lead to a fall in passenger numbers in November. Depending on the length of the current strike, the group’s revenue and profit numbers might suffer considerably through to the end of this year.
10 Nov 15
Superb 9M 15 results
Rising passenger numbers plus the currency effect resulted in consolidated revenue rising by 5.7% to €8.94bn in Q3 and by 7.4% to €24.3bn ytd. As material input costs were up by only 2.3% to €13.3bn and although personnel costs were up by 8.2% to €5.9bn, the carrier’s operating result reached €1.55bn, an increase of 62%. Thanks to the realisation of the €503m JetBlue disposal gain in previous quarters, the group’s pre-tax earnings tripled to almost €2bn and net earnings almost quadrupled to €1.75bn. The positive revenue and profit trend continued in the last quarter but as the disposal gain was realised earlier, operating (+47% to €1.12bn) and net earnings (+41% to €794m) growth rates were very much in line and lower than for the 9M. All the above numbers exceeded our expectations.
29 Oct 15
Passenger numbers +3.6% in August
The carrier transported 10.85m passengers in the last month which brought the ytd number to 72.8m, an increase of 2.7%. Although the passenger number will suffer in September because of yesterday’s and today’s strike by the pilots, our full-year projection of a 1.5% increase is possibly too cautious. In addition, the Labour Court of the State of Hesse has prohibited the strike today. It remains to be seen whether this is a final decision by German Labour Courts. The group’s SLF increased by 1.2pp to 87.6% in August and by 0.7pp to 80.9% ytd. Both improvements are the result of a stronger demand than offer increase. The ticket price will also be up, as the number of passengers flying inter-continental continued rising disproportionately. While passengers flying to/from European destinations was up by 3.2% to 8.57m, those flying to the Americas (+4.5% to 1.11m) and to APAC (+7.0% to 686,000) increased much more strongly. Demand for destinations in the Middle East/Africa was somewhat subdued (+3.1% to 491,000). Lufthansa’s logistics division continued suffering from weak worldtrade. Volume was down by 4.4% to 149,000 tons in August and by 1.5% to 1.24m tons ytd. As management continued increasing the offer (+2.4% and +3.1%, respectively), the FLF fell by 5.2pp to 61.1% and by 3.3pp to 66.1%. Our divisional revenue projection is possibly too optimistic as we foresee the amount of sold ton-kilometres falling by only 0.2% in 2015 whereas it is down by 1.7% ytd.
09 Sep 15
Passenger traffic numbers point in the right direction
The number of passengers was up by 4.6% to almost 11m in July which brought the ytd number to 61.9m, an increase of 2.5%. As the amount of sold seat-kilometres was up by 6.4% whereas the offer increased by ‘only’ 3.6%, last month’s SLF improved by 2.3pp to 86.9% (+0.6pp to 79.8% ytd). The logistics numbers have, however, deteriorated. The offer was raised by 2.8% but demand fell by 4.3%. Consequently, the FLF was down by 4.7pp to 63.1% in July and is now down by 2.9pp to 66.9% ytd. The group benefited from very strong passenger growth to APAC (+16% to 306,000) and to the Middle East/Africa (+14% to 519,000). Whereas passengers flying to/from European destinations increased by only 3.5% to 6.42m, the growth rate was +5.1% (to 847,000) with American travellers. Consequently, the SLF was up to all destinations and, except for Middle East/Africa (-0.4pp), it is also up to all other destinations ytd.
11 Aug 15
Good numbers in a quarter with no strike actions
Lufthansa increased revenue by 8.5% to €15.4bn in H1 15 while EBIT increased almost five-fold to €463m and net profit turned around from a loss of €79m to a profit of almost €1bn. All these numbers are clearly higher than we had anticipated. For the full-year, management continues expecting an EBIT number (before strike costs) of more than €1.5bn.
30 Jul 15
Turkish Airlines plans to extend its budget airline to Germany
Lufthansa and Turkish Airlines are joint owners of Sun Express, a holiday carrier. Lufthansa had the intention not only to use Eurowings as its own budget airline but also to integrate Sun Express into this operation. The intention of Turkish Airlines to also fly to and from Germany with its own budget airline (Anadolu-Jet) threatens this. This possible new competitor will intensify the competition even further and may ultimately result in Turkish Airlines leaving the Miles & More frequent traveller partnership.
24 Jul 15
Fraport intends to increase the fee in Frankfurt by 1.9%
The multi-year airport fee for Frankfurt Rhein-Main ends at the end of 2015 and the airport operator intends to ask for an increase of 1.9% as of the beginning of 2016. The group’s average fee (not just for Frankfurt) was raised by 2.9% at the beginning of 2015. The airlines are complaining about this intention and are instead asking for a fee cut. They point to Amsterdam-Schiphol which apparently reduced its fees to attract more traffic. Additional passengers will spend additional money at the airport’s retail outlets thus raising the revenue generated here. In fact, we believe that Fraport will generate around 44% of its 2015 EBITDA with Retail & Properties whereas Aviation is expected to contribute ‘only’ 29%. However, the former division is not just retailing but also the letting of office and hotel space. As a divisional profit break-down is not available, we assume that clearly less than half of the divisional profit stems from the airport’s retailers. On the other hand, the airlines, in particular Lufthansa, are under enormous profit pressure. This carrier’s fees represented more than 30% of material input costs in Q1 15 (or 18% of revenue) and they increased by 6.7% while total material input was up by ‘only’ 1.1%. Although fees in Frankfurt represent clearly less than 50% of total fees, a further increase will burden the group’s profitability. This comes on top of the renewed strike threat by its pilots.
19 Jul 15
Lack of strike action has helped in Q2 15
Lufthansa suffered from strike action in Q1. Consequently, the number of passengers was down by 0.8% and the amount of sold seat-kilometres was up by ‘only’ 1.3%. As a result of the lack of strikes in the last quarter, the number of passengers is up by 2.1% and sold seat-kilometres by 3.6% in H1. The numbers for the last three months show a falling SLF of 1.4pp for April, but improvements of 0.9pp for both May and June. Consequently, the ytd SLF is now up by 0.2pp to 78.3%. However, the situation remained difficult in the logistics division with the FLF down by 2.6pp to 65.8% in June and also down by 2.6pp to 67.6% ytd. Except for destinations to/from the Middle East/Africa, the number of passengers increased to all destinations in June with the strongest growth to Asia/Pacific (+9.9% to 600,000)). The number of passengers to European destinations was up by 2% to 8.17m. As a result of this, the ytd numbers are up to all destinations. What is true for the number of passengers is also true for the regional SLF development in June, i.e. it is up to Europe (+0.5pp), the Americas (+1.4pp), and Asia/Pacific (+1.9%), but down to the Middle East/Africa (-2.8pp). The respective ytd numbers are +1.2pp, -0.3pp, unchanged, and -1.7pp.
09 Jul 15