Lufthansa Group saw its net profit in 2018 reduced to €2.161bln, down 8 percent from €2.340bln the previous year. Adjusted EBIT was 4 percent lower at €2.836bln. This means that the German/Austrian/Swiss airlines group lost its top ranking as the most profitable European airline to International Airlines Group (IAG), which recorded a net profit of €3.230bln in February.
Still, CEO Carsten Spohr looks back on 2018 as a ‘solid year’.
While 2017 was characterized by social unrest and strikes, Lufthansa experienced other ‘headwinds’ in 2018 that ate into its profitability: fuel costs were up €855mln, Eurowings needed another €170mln in integration costs of it airberlin operations and flight cancellations/ATC delays cost €518mln. Fuel costs were fully compensated by cost reductions at the network airlines of €1.106bln with Austrian saving 55 percent on fuel costs versus Swiss 14 percent increase.
Revenues went up only one percent to €35.844bln, still making it the biggest European airline group revenue-wise with IAG way behind at €24.406bln. Free cash flow was down from €2.117bln to €250mln, due to lower operating free cash flow and higher investments.
Network airlines up
The network airlines Lufthansa, Swiss and Austrian increased revenues by 5 percent to €22.719bln and adjusted EBIT by 6 percent to €2.429bln. Revenues were highest on routes to North America and Asia, with Europe performing below expectations in HY2.
Lufthansa Airlines (including City Line and Air Dolomiti) revenues dropped 3 percent to €15.917bln. Adjusted EBIT was up 5 percent to €1.753bln.
Swiss including Edelweiss was the best performing airline within the Group, improving adjusted EBIT by 11 percent to a record €593mln. Fuel hedging, high demand in Geneva, and benefits from operating a young fleet have all helped to achieve this result. Revenues went up 4 percent to 4.897bln. Swiss expects to further benefit from this in 2019, but fleet growth and higher fuel costs will negate some of the previous advantages.
Lufthansa aircraft at its major hub in Frankfurt. (Lufthansa)
Austrian’s adjusted EBIT was down from €93mln to €83mln, mainly due to higher fuel costs. Revenues were down 8 percent to €2.178bln. Despite flying 8 percent more passengers, results were strained by huge competition at its Vienna base. This is expected to continue this year.
Eurowings heading for break-even
Eurowings, Germanwings and Brussels Airlines increased revenues by 19 percent to €4.230bln, but together accounted for and adjusted EBIT of €-231mln. As mentioned, the biggest factor was integration costs of 77 airberlin aircraft in the first three quarters of 2018, but integration is now done and Eurowings is expected to break-even in 2019. The loss is seen as the price to pay for having this unique opportunity to have this share of the low-cost market.
Lufthansa specifically mentions €122mln of extra costs on engine overhaul as the fleet grows. The Group invested €3.3bln in new aircraft as part of its €3.8bln total investment, adding 46 aircraft to the network fleet.
CEO Carsten Spohr said that Lufthansa will restructure its fleet by retiring some older types in both the long-haul segment (A340s, A380s, 747-400s) and short-haul segment (A320ceo’s).
Aviation Services saw EBIT increased in all businesses Cargo, Technik and catering, but adjusted EBIT was down 45 percent to €-183mln due.
Capacity increase carefully planned
For 2019, Lufthansa Group expects an adjusted EBIT margin of 6.5 to 8 percent. Further cost reductions should fully compensate for the expected €650mln in fuel costs. The capacity increase for the Summer at network airlines will be only 1.9 percent compared to 3.8 percent previously planned, but the full-year capacity increase will still be around 4 percent. Asia Pacific will have the biggest capacity growth at 9 percent. Eurowings will grow capacity by 2 percent.
Unit costs are expected to be reduced by 0.5-1.5 percent at the network airlines, but by 7 to 9 percent at Eurowings by network refinements and reduction of irregularity costs and higher productivity.