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Lufthansa Group outlines its plans for 2015, unveils the new Eurowings brand

Eurowings A320-200 and A330-200 (14)(Flt)(LRW)

Lufthansa Group (Frankfurt) has issued this report as a result of the meeting of the Deutsche Lufthansa AG Executive Board. The board gave approvals for the new Wings low-cost subsidiary and the launch of the new Eurowings.

Highlights include:

• Focus on 2015 as the year of ‘New Lufthansa Premium Quality’

• New European and intercontinental flight products under the “Eurowings” brand, and lease-in of up to seven Airbus A330-200s

• Letter of Intent with SunExpress for Eurowings long-haul routes

• Further structural development of Group airlines’ worldwide distribution

• Key financial indicator of “earnings after cost of capital” to replace “cash value added”

Here is the full report:

2015 should bring increasingly good news for customers and passengers of the Lufthansa Group, according to the plans of the Deutsche Lufthansa AG Executive Board. For the Group’s member airlines, fleet renewals and the completion of a number of major refurbishment projects should provide state-of-the-art aircraft cabins and five-star inflight travel comfort. The first quarter of 2015 will see Lufthansa German Airlines conclude the installation of its new First Class throughout its long-haul fleet; the second quarter will witness the completion of the new Business Class installation program; and the third quarter will see the new Premium Economy available on all of Lufthansa’s intercontinental aircraft. All the new long-haul aircraft of which Lufthansa will take delivery next year will have all the new cabins already installed. And the modernization of the long-haul fleet will be further pursued in 2015 with the arrival of two more Airbus A380s and four new Boeing 747-8s. Also slated for delivery next year are a further Boeing 777F for Lufthansa Cargo and ten short- and medium-haul aircraft of the Airbus A320 family.

“2015 will be the year of ‘Lufthansa Premium Quality’,” said Carsten Spohr, Chairman & CEO of the Deutsche Lufthansa AG Executive Board, on the occasion of the meeting of the company’s Supervisory Board today. “Whichever cabin they travel in, our inflight guests will be able to see and feel that Lufthansa is a premium-service airline which is one of the leaders in its field by any global benchmark. We will also be moving the entire Lufthansa Group further forward with our ‘7 to 1’ program,” Carsten Spohr continued. “And we presented the progress we have made in our various action areas here to our Supervisory Board today. As well as promoting innovation, it’s enhancing our quality and our efficiency that are particular focuses for us in all our concepts for new and further growth. And these enhancements will open up new opportunities for us in growth markets.”

‘New Growth Concepts’ action area

The Supervisory Board gave the formal go-ahead to the ‘Wings’ concept presented by the Executive Board at its meeting today, and approved the lease of up to seven Airbus A330-200 aircraft for the new low-cost operation’s intercontinental routes.

The Supervisory Board further approved the development of the ‘Eurowings’ concept, under which – within an umbrella framework – the Lufthansa Group’s Eurowings and Germanwings airlines, along with further flight operations in Europe, should acquire new customers by offering quality products at attractive prices in the form of low-cost short- and long-haul air travel services from the end of 2015 onwards.

The new products, which will be primarily aimed at the private travel sector, will help the airlines of the Lufthansa Group secure their strong positions in their home markets of Germany, Austria, Switzerland and Belgium in the point-to-point travel segment, too, in the longer term.

<p><a href=”http://vimeo.com/113519746″>The New Eurowings</a> from <a href=”http://vimeo.com/user19954503″>Bruce Drum</a> on <a href=”https://vimeo.com”>Vimeo</a&gt;.</p>

Video Above: The Lufthansa Group. The “New Eurowings”

“The ‘New Eurowings’ is our response to one of the major challenges confronting Europe’s airline industry,” Carsten Spohr explains. “For several years now we’ve been facing fierce competition from the rapidly-growing low-cost carriers in the point-to-point travel segment, not only in Germany but throughout Europe, too. And we are sure to see this competition extend more and more to the long-haul travel segment in the years ahead. Our ‘New Eurowings’ is our innovative response, which will enable us to fashion our own markets here.”

“Innovative concepts with substantially lower costs combined with the strengths, skills and expertise of the Lufthansa Group: that’s our recipe for success,” Spohr continues. “And our new ‘New Eurowings’ product will offer both outstanding value for money and the strongest quality, reliability and safety credentials.”

The ‘New Eurowings’ concept follows the successful transfer of Lufthansa’s non-hub routes to Lufthansa Group subsidiary Germanwings. The program of transferring all Lufthansa routes not serving its Frankfurt and Munich hubs should be completed in early January 2015.

Eurowings (2014) logo (large)

In an initial step, the two already-existing airlines Germanwings and Eurowings will continue to perform their flight operations with their current networks and crews, under the umbrella of the new concept. For the new European operations the present Eurowings fleet, which consists of 23 Bombardier CRJ900 jets, will be replaced with up to 23 Airbus A320s between February 2015 and March 2017. Ten new A320s have been ordered to this end, while up to 13 further A320s will be reassigned to Eurowings from existing orders held by the Lufthansa Group. This will give the ‘New Eurowings’ a standardized fleet of Airbus A320 aircraft by the end of 2017, along with the further cost benefits that will derive from these advanced aircraft’s fuel-efficient credentials. Further routes will also be added to the Eurowings network, operated from a new Eurowings base outside Germany, in the course of 2015.

In addition to its European network, the ‘New Eurowings’ will also begin to add long-haul services to its low-fare product range from the end of 2015 onwards, in collaboration with German-Turkish airline SunExpress. To this end, a Letter of Intent has been signed with SunExpress, a joint-venture company of Lufthansa and Turkish Airlines, under which the intercontinental services to be offered under the Eurowings brand will be flown under the air operator certificate (AOC) of SunExpress Deutschland and with SunExpress Deutschland cockpit and cabin crews. The first intercontinental destinations to be served will include points in Florida, Southern Africa and the Indian Ocean. The new flights will initially be operated by a fleet of three Airbus A330-200 aircraft each offering 310 seats. The Eurowings long-haul fleet should then be gradually expanded to up to seven A330-200s over the next few years.

As with the already-successful Germanwings concept, the new Eurowings long-haul products will offer customers a choice of ‘Best’, ‘Basic’ and ‘Smart’ fares. Home base for the new long-haul fleet will initially be Cologne/Bonn Airport; and Cologne will also be the home of the Wings carriers’ commercial management operations.

‘Efficient and Effective Organization’ action area: Lufthansa Group to reshape member airlines’ field sales structures

The Lufthansa Group will be realigning the field sales structures of its member airlines with effect from 1 March 2015, in response to the new demands of the world’s sales markets. In future, all the Group’s global field sales will be the responsibility of a single Group wide entity. The new arrangement should provide greater field sales harmony within the Lufthansa Group, in both product and distribution-technology terms.

‘Value-Based Management’ action area: “earnings after cost of capital” to replace “cash value added” as key financial indicator for corporate decisions

The Deutsche Lufthansa AG Executive Board also presented the Supervisory Board with a new value-based management concept at the latter’s meeting today which should be adopted at Deutsche Lufthansa AG in the course of the coming year. The new concept will see two new key financial indicators – earnings after cost of capital (EACC) and return on capital employed (ROCE) – replace the key financial indicator of cash value added (CVA) which is currently used in all decision-making processes and for the remuneration of executive staff from 2015 onwards.

The new key financial indicators are easier to calculate, which should help anchor value-based management even more firmly within the Lufthansa Group. The new figures show whether the capital employed is achieving sufficiently high results to increase the company’s value, and should thus ensure that all corporate decisions are as sustainably-minded as possible.

All images by the Lufthansa Group.

AeroLogic adds a new route to Hong Kong

AeroLogic (Leipzig/Halle) on October 26 will add a new weekly cargo route from Frankfurt to Hong Kong via Ashgabat. The return flight will operate nonstop per Airline Route.

The company was established as a joint venture by Deutsche Lufthansa AG and Deutsche Post Beteiligungen Holding AG. The respective companies of the shareholders entrusted Lufthansa Cargo and DHL Express with the operational responsibility.

AeroLogic has its own Air Operator Certificate (AOC), its own traffic rights, and is responsible for all airline operations including aircraft, pilots and network.

The route network includes more than 20 destinations in Europe, in the Middle East, in Asia and North America. During the week, AeroLogic mainly flies to Asia within the express network of DHL Express, and on the weekend to the USA within the network of Lufthansa Cargo respectively.

Copyright Photo: Nick Dean/AirlinersGallery.com. Boeing 777-FZN D-AALC (msn 36003) taxies at Paine Field in Everett.

AeroLogic: AG Slide Show

Video:

Lufthansa is facing a strike by its pilots tomorrow

Lufthansa (Frankfurt) has issued this statement today:

Lufthansa regrets the announcement of strike action by the Vereinigung Cockpit pilots’ union (VC) for tomorrow (Friday). This morning – and therefore just a few hours before the start of talks that had been agreed for today – the union announced that there would be a strike at Germanwings if agreement wasn’t reached today (Thursday) on the issue of transitional benefits for pilots.

In a letter on Monday, Lufthansa had proposed today’s talks in order to resume negotiations and had prepared a suggestion on what form further negotiations should take. As per Lufthansa’s invitation, the aim of these talks would primarily have been to specify an orderly process and a timetable for further negotiations.

Dr Bettina Volkens, Chief Officer Human Resources and Legal at Deutsche Lufthansa AG, says: ‘We are very disappointed that we cannot avert strike action. The impression given is that the Vereinigung Cockpit pilots’ union had already decided to strike. It is unrealistic to expect to reach agreement on a new model for sustainable transitional benefits in the course of a single day. The fact that an ultimatum for concluding a wage agreement was issued on the morning of negotiations – even though we made it clear that the talks would initially have to be about what form the further negotiation process should take – is very unusual and incomprehensible.’

Lufthansa and Germanwings will now be primarily focusing on limiting the impact of the strike. The strike action announced for Friday will coincide with the end of school holidays in Thuringia and Saxony. Dr Bettina Volkens says: ‘We will do everything to provide the best-possible service to Germanwings passengers and, if possible, to get them to their destination in spite of the strike.’

Prior to the strike, Lufthansa had already made an offer to the Vereinigung Cockpit pilots’ union at the start of April concerning future early retirement from flight service and had therefore created a basis for further negotiations. This offer would provide all cockpit staff with the option of early retirement from flight service, including in the future.

In concrete terms, Lufthansa’s offer on transitional benefits provides for the following:

• For employees who have been working at Lufthansa since before 1 January 2014, Lufthansa will bear the costs of early retirement, including in the future. This means that employer-financed transitional benefits will be maintained for several decades.

• For employees who start or have started work at Lufthansa after 1 January 2014, it will still be possible to retire early from flight service. However, the costs of this will no longer be borne by Lufthansa, but rather by the employees. In the event of incapacity for flight service, a purely employer-financed insurance policy will still be included for all employees.

• The individual age for retiring from flight service will be raised, depending on the length of service, from 55 for more senior up to 60 for younger employees. The longer employees have already been in the company, the less affected they will be by the increase in the earliest possible individual retirement age. Employees who have been with the company for a very long time are not affected at all by the changes.

• Today, on average, cockpit crew leave Lufthansa German Airlines at the age of 59. In future, the average age for employer-financed retirement from flight service at Lufthansa German Airlines is intended to go up gradually over several years to 61. The average age of 61 reflects an overall trend in society towards a longer working life.

Copyright Photo: Brian McDonough/AirlinersGallery.com. Boeing 747-830 D-ABYP (msn 37839) with the special 1500th Boeing 747 markings departs from Washington (Reagan).

Lufthansa: AG Slide Show

Lufthansa lays out its strategy to allow the Lufthansa Group to grow in the future

Lufthansa (Lufthansa Group) (Frankfurt) has announced its on-going strategy for dealing with changing dynamic challenges in the marketplace. Key points include; Making Lufthansa a competitive five star airline (i.e. to compete against the Gulf carriers), Eurowings will operate up to 23 Airbus A320s with a new base at Basel, Germanwings‘ fleet will grow to 60 aircraft, a new lower cost long-haul option and how to reduce the cost of flying the Airbus A340s (above). Here is the full report:

Deutsche Lufthansa AG has set itself the objective of regaining its role as the benchmark of the aviation sector and, with it, the first choice for customers, employees, investors and partners.

The company has now unveiled an extensive range of actions to this end which will enable it to derive greater benefit from the continued growth of the global air transport market.

These include new platforms and products for both intercontinental and European air services, an intensified partnership with Air China, an even stronger focus on quality and innovation and a groupwide drive to create more efficient structures and processes.

“The global market for air transport continues to grow,” says Carsten Spohr, Chairman of the Executive Board & CEO of Deutsche Lufthansa AG. “But in the dynamic and highly price-sensitive market segments, our current platforms only enable us to exploit the growth potential to a limited extent, in view of their sometimes over-rigid cost structures. That’s why we are now seeking to tap new growth areas, by creatively and innovatively refining our products and services in both the airline sector and – especially – related markets. By 2020 we aim to have raised our revenues from our new businesses, our new platforms and our service companies from the present 30% to 40% of our total revenue flow.”

“We don’t want to be driven by change in the aviation sector: we want to be among the drivers of it,” Spohr continues. “But doing so demands bold steps forward: our market is no place for half-measures. The Lufthansa Group has often set our industry’s standards in the past. And I see no reason why we shouldn’t do so in the future. After all, we have the best of foundations for achieving this: we are a widely diversified aviation group with strong brands; we have a very loyal customer base; and we can count on highly qualified employees who are the envy of our competitors.”

“Our current SCORE program has also equipped us with an ability to change,” Spohr points out. “And we now aim to use this to forge our corporate future.” The work here has involved defining seven ‘action areas’ – not only in the marketplace but also in terms of its internal structures and processes – which should enable the Group to make fuller and more fruitful use of its combined strengths and resources. Priority is also being given within these action areas to the Group’s new growth concepts and to the key issues of innovation and quality, though improving its competitive credentials also remains high on the agenda.

“The fundamental SCORE notion of continuously reducing our unit costs must remain equally valid when the program ends as scheduled in 2015,” Carsten Spohr emphasizes. “And to that end, we will be making this a permanent groupwide concern. We must constantly generate new ideas to improve our profitability, sharpen our competitive edge and keep us the first choice for our customers.”

New growth concepts

The Lufthansa Group will be establishing new platforms with competitive cost structures to ensure that it derives maximum benefit from the further growth of the aviation sector. Thus, the Group’s present multi-brand system with its multiple hubs of Frankfurt, Munich, Zurich, Vienna and Brussels will now be consistently complemented by the new “WINGS” multi-platform concept in all the Group’s European home markets. The new WINGS family, which will build on the success of the Germanwings concept, will be specifically aligned to the high-growth market for private air travel. The Group will use the new WINGS master brand to bundle the various platforms for its point-to-point air travel business; and it is considering extending the concept to intercontinental services, too.

Amalgamating the European members of the WINGS family – a move which will also include Germanwings – will permit an aligned management of all these operations. With Germanwings, Lufthansa will also complete the planned transfer of all of its routes not serving its Frankfurt or Munich hubs by next spring. The Germanwings fleet will also be further enlarged to up to 60 aircraft.

With Eurowings as its starting platform, the Lufthansa Group will develop a competitive European air travel product for continental travel. Since the competitive cost structures required cannot be achieved with the present fleet of Bombardier CRJ aircraft, these will be replaced with Airbus A320 equipment. Eurowings will operate up to 23 A320s, and its services are set to be launched in spring 2015. The first Eurowings base outside Germany will be in Basel, Switzerland, and will have a fleet of an additional two to four A320s. It should commence operations early next year.

The Lufthansa Group also plans to create a competitive new long-haul platform under the WINGS banner for the price-sensitive segment of private travel. Studies are currently being conducted into whether this should be done alone or with a further partner: for the latter option, talks are already at an advanced stage with Turkish Airlines. In an initial phase, the new intercontinental platform is expected to operate with a fleet that will gradually be built up to seven Boeing 767 or Airbus A330 aircraft, with operations likely to commence in winter 2015.

In a further move, Lufthansa is considering to what extent up to nine of its Airbus A340s could be operated at substantially lower unit costs, either on new routes or on routes currently threatened with closure. Negotiations are under way with all the internal and external stakeholders involved to achieve the cost reductions required.

Ultimately, the extent to which these new platforms and formats can be developed in the longer term will depend on their profitability and their market success.

Elsewhere, Lufthansa is working intensively to further develop its bilateral partnerships with other air carriers. In this connection it has just concluded a new agreement with Star Alliance partner Air China for closer collaboration on the MRO and passenger services fronts and, ultimately, a joint-venture arrangement. It is Lufthansa’s declared objective to offer its customers in the four biggest markets and economies outside its home markets the best product available, in collaboration with its local partners.
As a unique aviation group, the Lufthansa Group will also be devoting sizeable resources to further developing its various service companies. World market leaders Lufthansa Technik and LSG Sky Chefs are also benefiting from the expansions of numerous Lufthansa competitors, especially the Gulf-based carriers, and thus serve as a natural “hedge” in the global competitive landscape.

Lufthansa Technik and LSG Sky Chefs will be investing in expanding their business, with a focus on Asia and the Americas. LSG Sky Chefs also aims to increase its involvement in related markets beyond the aviation sector, such as the rail catering segment. Miles & More, too, offers significant further growth potential; and the Lufthansa Group’s customer loyalty program will now be refined to enhance its appeal to “less frequent flyers”, and also to offer more mileage earning and redemption options.

Quality and innovation

Quality and innovation are priority concerns on the overall agenda of the Lufthansa Group. And Executive Board Chairman & CEO Carsten Spohr will bear direct responsibility for the Group’s planned innovation and quality drive. Lufthansa intends to invest a total of EUR 500 million in innovations groupwide between now and 2020. The plans here should see a new “innovation hub” established this year in Berlin, closer to the start-up and digital technology scene; and an “innovation fund” will also be set up to expedite the development of promising new ideas from both within and outside the Group.

Lufthansa not only wants to become the first “five-star carrier” in the Western Hemisphere; it also aims to achieve quality leadership in all its various markets. The quality drive here will include bringing greater personalization to its products and services, with the aim of tripling the present revenues from its additional services between now and 2020.

Outlook

Despite the investments that the raft of actions announced will entail, the Lufthansa Group remains confident of its revised business projections for 2014 and 2015. The Executive Board expects to report an operating profit of around EUR 1 billion for the current year, or EUR 1.3 billion after adjustments for one-off effects.

A series of structural actions will need to be taken soon, however, if the financial goals for 2014 and 2015 are to be achieved. Thus, Lufthansa will reduce its 2014 available-seat-kilometer capacity growth by over 50% compared to original plans, and will be withdrawing five aircraft from its European network and three from its intercontinental routes in the 2014/15 winter timetable period.

Lufthansa Cargo’s capacity will also be reduced this winter through the withdrawal of two Boeing MD-11 freighters.

The Lufthansa Executive Board is confident that the raft of actions planned will go a long way towards securing the Lufthansa Group’s continued viability and further success.

Copyright Photo: Bernhard Ross/AirlinersGallery.com. What to do with the Airbus A340s? Lufthansa is considering its options with the now aging fleet of Airbus A340s. Airbus A340-311 D-AIGC (msn 027) taxies at the Frankfurt base in the Star Alliance motif.

Lufthansa: AG Slide Show

Lufthansa and Air China to strengthen their partnership

Lufthansa (Frankfurt) has issued this statement:

Carsten Spohr, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG, and Song Zhiyong, President and Executive Director of Air China Limited (Beijing), signed a memorandum of understanding (MOU) to enhance the commercial partnership as part of a joint venture, during the Chancellor’s visit to China.

Both companies also signed a memorandum of understanding to expand collaboration in the area of maintenance, repair and overhaul services.

As members of the Star Alliance, Lufthansa and Air China have been connected for a number of years. The memorandum of understanding should pave the way for the creation of a commercial joint venture between the German airline and Air China.

This partnership will add to the existing joint ventures with United Airlines and with Air Canada between Europe and North America (since 1998) and with ANA (since 2012) on routes between Europe and Japan.

The agreement with Air China will allow the Lufthansa Group to provide its airlines with even better access to the world’s second largest aviation market after the USA.

The new partnership agreement should come into force as early as the start of the winter flight timetable in late October 2014.

Since 2007, Air China has been a member of the Star Alliance, the world’s largest airline alliance, and with almost 49 million passengers, as measured by intercontinental traffic, is China’s biggest airline.

Top Copyright Photo: TMK Photography/AirlinersGallery.com. Lufthansa’s Boeing 747-430 D-ABVW (msn 29493) climbs away from the runway at Toronto’s Pearson International Airport (YYZ).

Lufthansa: AG Slide Show

Air China: AG Slide Show

Bottom Copyright Photo: Jay Selman/AirlinersGallery.com. Boeing 777-39L ER B-2043 (msn 41441) of Air China approaches the runway at New York’s John F. Kennedy International Airport (JFK).

Lufthansa lowers its profit forecast for 2014

Lufthansa (Lufthansa Group) (Frankfurt) has adjusted its earnings forecast. The company issue this revised forecast:

Deutsche Lufthansa AG is adjusting its earnings forecast as a result of the revenue development in the passenger and cargo businesses, which is below expectations: the company’s Executive Board is now projecting an operating profit for the current financial year of approximately EUR 1 billion ($1.35 billion)(approximately EUR 1.3 billion after adjustment for one-off effects). Previously the company had been forecasting an operating profit for 2014 of EUR 1.3 to 1.5 billion (EUR 1.7 to 1.9 billion after adjustment for one-off effects).

“The revenue risks mentioned when we presented the quarterly figures in early May have unfortunately materialized”, said Simone Menne, Chief Officer Finances and Aviation Services at Deutsche Lufthansa AG. The Group had already warned against increasing risks to the earnings forecast in the first quarterly reports. Above all it is the Group’s American and European business that has suffered from increasing excess capacity, which leads to falling prices on these routes. “We will therefore noticeably reduce our capacities during the winter timetable period”, emphasized Menne. Strong capacity growth by state-owned Gulf carriers was a major concern, she added. They are advancing ever further into the European market, also by means of investments in European airlines, she explained

The strike by the “Vereinigung Cockpit” pilots’ union in early April, had a negative results impact of EUR 60 million ($81.2 million). Only recently has booking activity returned to normal. Additionally, impairments on receivables denominated in Venezuelan Bolivar have burdened the result of the current year by EUR 60 million so far.

Given these economic developments the Executive Board no longer believes that the earnings target for 2015 of EUR 2.65 billion ($3.58 billion) set as part of the Score program can be achieved. The company nonetheless intends to substantially increase its operating profit compared with the current year. The basis for this will be laid with the noticeable reduction of capacities during the winter timetable period. Additionally, in order to boost the competitiveness of the Lufthansa Group, structural measures will be implemented at a higher pace. The details will be presented by Carsten Spohr, Chairman and CEO of the Executive Board in July. The Executive Board sets a new target of approximately EUR 2 billion on an operating profit level for 2015, provided that conditions remain stable. Menne emphasized: “The current development underlines the importance of Score for the group. We are achieving a sustainable reduction of our unit costs and now aim to stabilize the revenue trends, in order to counteract an ever intensifying competitive situation”, said Simone Menne.

Copyright Photo: Javier Rodriguez/AirlinersGallery.com. Airbus A320-214 D-AIUD (msn 6033) is the only A320 painted by Lufthansa in the special “Fanhansa” colors for the 2014 FIFA World Cup Brazil.

Lufthansa: AG Slide Show

 

Lufthansa’s pilots to strike on April 2-4, Lufthansa calls on the Vereinigung Cockpit pilots’ union to resume talks

Lufthansa (Frankfurt) is facing another strike by its pilots, represented by the Vereinigung Cockpit pilots’ union (VC), from April 2 through 4 next week. The labor dispute involves pay and retirement issues.

Read the full report from Reuters: CLICK HERE

 

Lufthansa has called for renewed talks to end the dispute and has issued this statement:

Lufthansa logo-2

Lufthansa has called on the Vereinigung Cockpit pilots’ union (VC) to resume joint talks as soon as possible. “We still have four and a half days to avoid further disruptions for our customers, which would occur with the strike that has been announced,” said Dr Bettina Volkens, Chief Officer Human Resources and Legal, Deutsche Lufthansa AG. “We are willing to continue the discussions at any time and have laid the groundwork for negotiations with the new offer for the wage settlement and the offer concerning early retirement from flight service. With the goodwill of everyone involved, we should be able to avoid a strike,” Ms Volkens continued.

VC has announced a three-day strike for employees of Lufthansa German Airlines, Lufthansa Cargo and Germanwings at every German airport from April 2-4.

Although Lufthansa continues to hope for a negotiated solution, it is working flat out to keep the effects of a strike on its customers to a minimum. “We greatly regret the fact that this strike from April 2-4 may prevent us from bringing our passengers to their destination or back home on time. We will do everything to take care of those affected as well as we possibly can. Wherever possible, we will offer alternative travel options with. At the same time, we are still working to solve the collective bargaining dispute,” Ms Volkens said.

Lufthansa will, in any event, inform its customers in good time about the details of flight cancellations, rebooking options and alternative travel arrangements at LH.com. The Company will also send information about changes to flights by email and text message to customers who have provided their contact details.

Lufthansa made VC an improved offer for the wage settlement. It provides for a sustainable pay increase of 5.2 per cent for the period from May 1, 2012 to December 31, 2015 as well as a one-off payment for all pilots at Lufthansa German Airlines, Lufthansa Cargo and Germanwings. A pay freeze is planned for the first six months of this period. There is to be a one-off payment of €2,000 for the period from November 1, 2012 to December 31, 2013. This corresponds to 1.2 per cent of the pilots’ total remuneration. For the period from January  1, 2014 to December 31, 2015, salaries are ultimately to rise in two stages by a total of 5.2 per cent: by 3 per cent retroactively as of January  1, 2014, and by another 2.1 per cent as of July 1, 2014. The original plan of linking salary increases to the Company’s performance has been dropped. Lufthansa has therefore accepted key demands made by VC. This offer means that the pilots would make a contribution to ensuring the Group’s future viability comparable with that of other groups of employees.

Lufthansa also offered to ensure that pilots can continue to retire early in future. The offer safeguards the positions of all employees who joined Lufthansa before January 1, 2014. As before, these employees can receive up to 60 per cent of their last gross salary until they reach the earliest possible statutory retirement age of 63. From 2017, the earliest possible age at which pilots can retire from flight service at Lufthansa German Airlines will be raised, depending on the length of service, from 55 for more senior to up to 60 for younger employees. Employees who have been with the Company for thirty years or more are not affected at all by the changes. Pilots at Lufthansa Cargo and Germanwings can already leave flight service only when they reach 60 years of age, and then make use of transitional benefits.

The previous wage agreement also stipulated that Lufthansa German Airlines cockpit staff had to reach an average age of 58 for early retirement. Lufthansa’s offer now raises the agreed average early retirement age within three years from 58 to 61 years, starting in 2016. The effective average age for taking early retirement in 2013 was already 58.9 years. This also reflects the general societal trend towards longer working lives.

For pilots who start or have started work at Lufthansa after January 1, 2014, it will still be possible to retire early from flight service. The matter of financing these benefits is the subject of future talks with VC.

For all employees, the offer still includes employer-financed insurance against incapacity for flight service.

Read the 2013 Lufthansa Group Annual Report: CLICK HERE

Copyright Photo: Rolf Wallner/AirlinersGallery.com. Airbus A319-114 D-AILU (msn 744) “Lulu Stork” taxies at Zurich.

Lufthansa: AG Slide Show

Lufthansa Group reports annual income of $435.7 million

Lufthansa Group (Lufthansa) (Frankfurt) reported 2013 annual net income of €313 million ($435.7 million), down 75 percent from the €1.22 billion profit reported in the same period a year ago. Here is the full report:

Deutsche Lufthansa AG has achieved the targeted improvement in earnings well. Adjusted for non-recurring effects, the operating profit rose year on year by 62 per cent to EUR 1.042bn (previous year: EUR 643m). The reported operating profit came to EUR 697m, having totalled EUR 839m the previous year. A comparison of the reported results is of little informational value, however. The previous year’s reported result was largely boosted by non-recurring income from transferring operations at Austrian Airlines, while the result for 2013 was depressed by restructuring and project costs for the installation of the new Lufthansa Business Class seats.

Lufthansa Group revenue was stable at EUR 30.0bn (previous year: EUR 30.1bn). At EUR 313 m, net profit for the year, which last year also included a profit of EUR 631 m from the sale of shares in Amadeus IT Holding, S.A., was lower, as expected (previous year: EUR 1.2 bn).

Christoph Franz, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG, said: “We have strengthened the earnings power of the Lufthansa Group again last year. This is driven by the earnings performance in the passenger business, where all Airlines rose significantly. This performance trend is sustainable. It is based on a continuous improvement in the cost structure and on the billions invested in new products and services. Customer feedback here is extremely positive. This performance in our core business segment has prompted us to propose to the Annual General Meeting that a dividend of EUR 0.45 per share be paid.”

Lufthansa and Germanwings boost earnings power and increase profit

Lufthansa and Germanwings increased their operating profit last year to EUR 265m – an increase of EUR 240m and thus the most visible earnings improvement in the Group. Adjusted for restructuring costs, the increase even came to EUR 340m. The persistent implementation of Score projects at Lufthansa, including the transfer of European direct traffic outside the hubs in Frankfurt and Munich to Germanwings, had a positive effect on earnings. The new aircraft, which continually join the fleet, are being fitted with the latest cabin products across all travel classes, which has already led to greater customer satisfaction and has also had an impact on the bottom line. These state-of-the-art aircraft are also considerably quieter and more fuel-efficient, and stand out for their lower operating costs. In 2013 alone the Group ordered 167 new aircraft worth EUR 23bn. While the revenue per available seat-kilometre (RASK) fell slightly due to currency movements and also because of disproportionate growth in Economy Class, costs per available seat-kilometre (CASK) were reduced even faster, and so the overall result improved considerably.

The passenger business overall performed well in 2013, contributing EUR 495m (previous year: EUR 556m, including one-off effects) to the Group’s operating result. Swiss accounted for a substantial share of EUR 226m, a year-on-year increase of EUR 22m. Austrian Airlines generated a profit in 2013 without tailwind from special items for the first time since joining the Lufthansa Group. The company’s profit of EUR 25m for the financial year is EUR 178m lower than in the previous year. However, the previous year’s positive result was solely due to non-recurring effects in connection with the transfer of flight operations to Tyrolean Airways. 

Lufthansa Technik and LSG Sky Chefs report record profits

All of the Group’s business segments were profitable in 2013. Lufthansa Technik and LSG Sky Chefs generated operating results of EUR 404m (previous year: EUR 328m) and EUR 105m (previous year: EUR 101m) respectively, which were both the highest earnings in their corporate history. The IT Services segment also increased its operating profit from EUR 20m in 2012 to EUR 36m – a rise of 80 per cent.

Effective cost management secured a positive result for Lufthansa Cargo, despite weak market demand and persistently high price pressure in the freight market. Revenue declined by nine per cent, but the company kept its operating margin stable. The Logistics segment generated an operating profit of EUR 77m (previous year: EUR 105m).

Group pursues restructuring undiminished and anticipates a further increase in the operating profit to between EUR 1.3bn and EUR 1.5bn in 2014 

“Score is on track. We have achieved our profit and restructuring targets for 2013. And we have created the conditions that will enable us to keep increasing our profits in the years ahead. We are working on further measures to improve earnings, which will enable us to cope with greater headwinds, too,” said Simone Menne, Member of the Executive Board and CFO at Deutsche Lufthansa AG.

The Group amended its depreciation policy, which will have an effect on the operating result from 2014 onwards. As many of its competitors have already done, the Company extended the depreciation period for its aircraft from 12 to 20 years, and reduced their residual book value from 15 to 5 per cent of the purchase price. This alteration corrects the effective useful life and the depreciation of the aircraft and ensures that they are presented correctly in the balance sheet. In the new financial year, the operating result is to rise by EUR 340m due to the change in depreciation policy, in 2015; it will increase by EUR 350m.

This change to the method of depreciating aircraft has no material effect on the Group’s economic strength. Its effects are felt solely at an accounting level. “Score therefore still aims to boost the operating profit sustainably by EUR 1.5bn compared with 2011,” said Menne. Applied to the earnings target, this meant that the Group now needed to increase its operating profit to EUR 2.65bn by 2015, she added. The change would also lead to a review of the Group’s dividend policy, since this was also dependent on the operating result. Simone Menne said: “We will review our dividend policy this year. However, it is clear that we will continue to let shareholders participate reasonably on our profits.”

The Group expects a positive business performance in the current year, too. As in 2013, the higher results should come largely from the passenger business. The Group’s adjusted operating result should therefore increase again by around 40 per cent and would come to between EUR 1.7bn and EUR 1.9bn for 2014. The reported operating result of the Lufthansa Group, including restructuring and project costs, should reach EUR 1.3bn to EUR 1.5bn at the end of the year. Christoph Franz said: “I am convinced that the Lufthansa Group and its staff will continue to successfully hold their own in an industry which will continue to change rapidly and consolidate further. The company has already become noticeably more dynamic and is creating value – for customers, employees and shareholders in equal measure. The Lufthansa Group and its companies are well prepared for the challenges ahead.”

2013 in figures

Revenue in 2013 remained stable at EUR 30.0bn, a fall of 0.4 per cent compared with the previous year. Overall, the Group’s operating income declined slightly to EUR 32.2bn in the reporting period, a fall of 2.4 per cent. Traffic revenue declined by 0.9 per cent to EUR 24.6bn. There was no change in operating expenses last year, which came to EUR 31.4bn (-0.1 per cent). Fuel costs fell by EUR 334m to EUR 7.1bn, a decline of 4.5 per cent. Included in this amount is a contribution of EUR -125m from price hedging. Fees and charges fell by 0.3 per cent on the previous year, in particular due to a lower number of flights.

In 2013, the Lufthansa Group generated an operating result of EUR 697m. To facilitate comparison, the operating result originally reported for the previous year was adjusted by EUR 315m following the amendments to accounting standard IAS 19. Following this adjustment, the result for 2012 came to EUR 839m.

The net result for the period fell by EUR 915m to EUR 313m. Earnings per share sank to EUR 0.68.

The Lufthansa Group invested EUR 2.5bn in the reporting period, EUR 156m more than in the previous year. Of the total, EUR 2.1bn went on modernising and maintaining the fleet. Cash flow from operating activities came to EUR 3.3bn and free cash flow (cash flow from operating activities less net capital expenditure) to EUR 1.3bn. For 2013, the Group had a by EUR 256m reduced net debt of EUR 1.7bn. Following the application of new accounting standards (IAS 19), the equity ratio went up 4.1 percentage points to 21.0 per cent.

Copyright Photo: Ton Jochems/AirlinersGallery.com. Boeing 747-830 D-ABYJ (msn 37834) taxies at Los Angeles International Airport.

Lufthansa: AG Slide Show

Lufthansa Group’s first quarter loss widens to $602 million

Lufthansa Group (Lufthansa) (Frankfurt) reported its net loss for the first quarter widened to $602 million, up from a loss of $516.8 million in the same quarter a year ago. the first quarter is usually the weakest quarter for the carrier.

The airline issued this statement:

In the traditionally weak first quarter, Deutsche Lufthansa AG recorded an operating result on a par with last year at EUR -359m. The operating result includes restructuring costs of EUR 64m from the SCORE programme. Earnings improvements in the operating segments helped the Group make up for the extra costs. The net result for the period fell by 16.5 per cent to EUR -459m due to impairment losses and other valuations as of the reporting date. At EUR 6.6bn, revenue for the Lufthansa Group in the first quarter remained stable.

“We took another step towards our target of sustainable earnings improvements in the first quarter. Nearly all the Group companies improved their result,” explained Simone Menne, Member of the Executive Board, responsible for Finances and Aviation Services at Deutsche Lufthansa AG. “We are firmly on course with our SCORE programme.”

In operational terms, the Group improved its result by a total of EUR 95m in the Passenger Airline Group, Logistics, MRO, Catering and IT Services segments. Lufthansa German Airlines achieved the greatest improvement in the operating result, with an increase of EUR 77m. Thanks to a notable reduction in the number of flights and its optimised capacity management, the company boosted the load factor of its aircraft in the first quarter to 75.5 per cent and at the same time increased its yields. The strike by Lufthansa ground staff on 21 March depressed the operating result for Lufthansa German Airlines, as did high fuel costs and the long winter, which also weighed on the other airlines in the Lufthansa Group.

At the end of the first quarter 2013, Lufthansa German Airlines reported an operating loss of EUR 292m. At SWISS, the operating result came to EUR -16m, compared with EUR -3m in the same quarter last year. Austrian Airlines improved its operating result by EUR 11m to EUR -56m. Overall, the operating loss for the Passenger Airline Group segment improved to EUR -363m.

The Lufthansa Group also improved its operating result in the Logistics segment. Lufthansa Cargo increased its operating profit, in part thanks to targeted capacity management and lower depreciation and amortisation. At the end of the first quarter, the figure for the segment was EUR 27m, a rise of EUR 7m. The operating profit for the MRO segment was up by EUR 16m to EUR 81m. Lufthansa Technik adopted some 200 individual measures as part of SCORE in the first quarter, which by 2015 are intended to improve the organisation of administrative functions and align them better with customer needs. LSG SkyChefs improved its operating result by EUR 9m, posting an operating profit of EUR 3m for the period January to March. In the IT Services segment, Lufthansa Systems earned an operating profit of EUR 3m, compared with EUR 4m in the same quarter last year.

Given the improvement of the operating results for the Group companies in the first quarter, the positive contributions by SCORE and stable demand in the passenger business, the Group confirmed its earnings outlook for the year 2013. The operating profit for the Lufthansa Group in 2013 is predicted to be higher than the EUR 524m achieved last year. Positive earnings contributions from SCORE should not obscure the need for further change, however, emphasised Simone Menne, adding, “In competition with well-funded competitors, especially from the Middle East and Far East, and with low-cost airlines in Europe, we need new structures that will allow us to generate higher profits again. Putting the agreed measures into practice remains a challenge. We nevertheless intend to pursue our chosen path and shape our future with the required perseverance.”

The first quarter of 2013 in figures

Revenue for the Lufthansa Group in the first quarter of 2013 came to EUR 6.6bn – an increase of 0.1 per cent on the previous year. Traffic revenue declined by 0.2 per cent to EUR 5.3bn. Overall, the Group’s operating income went up to EUR 7.2bn in the reporting period, an increase of 0.3 per cent.

Operating expenses rose by 1.7 per cent in the first quarter to EUR 7.7bn. Fuel costs climbed by EUR 36m to EUR 1.7bn. This represents an increase of 2.2 per cent. Included in this amount is a negative contribution of EUR 25m from fuel hedging. Fees and charges fell by 2.2 per cent on the previous year, due to a lower number of flights.

In the first quarter, the Lufthansa Group reported an operating result on a par with the previous year of EUR -359m. To facilitate comparison, the operating result for the same quarter last year was adjusted by EUR 22m following the amendments to accounting standard IAS 19. Following this adjustment, the result for the first quarter of 2012 also came to EUR -359m.

The net result for the period was down by 16.5 per cent to EUR -459m. Expenses for severance pay and compensation as part of the SCORE job cuts depressed the Group’s result for the first quarter, as did impairment losses and valuation effects. Earnings per share sank to EUR -1.00.

Lufthansa invested EUR 718m in the reporting period. Of this sum, EUR 657m went on modernising and maintaining the fleet. Cash flow from operating activities came to EUR 976m and free cash flow (cash flow from operating activities less net capital expenditure) to EUR 463m. For the first quarter, the Group had net debt of EUR 1.7bn. Following the application of new accounting standards (IAS 19), the equity ratio is now 15.4 per cent.

Lufthansa Group January–March  Change
    2013 2012** 2012(old) 0.1%
Total revenue €m 6,628 6,619 6,619 0.1%
of which traffic revenue €m 5,337 5,349 5,349 -0.2%
Result from operating
activities
€m -464 -358 -379 -29.6%
Operating result €m -359 -359 -381 0.0%
Adjusted operating
margin*
in % -5.2% -5.2% -5.6% 0.0%
Net profit/loss for the period €m -459 -394 -379 -16.5%
Capital expenditure €m 718 592 592 21.3%
Cash flow from
operating activities
€m 976 833 833 17.2%
Employees as of 31.3.   116,516 120,898 120,898 -4,382
Earnings per share -1.00 -0.86 -0.87 -0.14

*) Operating result plus write-backs of provisions, divided by revenue
**) Previous year’s figures have been adjusted in line with changes to IAS 19

Copyright Photo: Brian McDonough. Lufthansa is gradually replacing its older Boeing 747-430s. D-ABTF (msn 24967) climbs gracefully away from Dulles International Airport near Washington, DC.

Lufthansa: AG Slide Show

Lufthansa to merge some European operations under the Germanwings low-cost AOC on January 1

Lufthansa (Frankfurt) will merge all European Lufthansa operations (outside of the Frankfurt and Munich hubs) under the Germanwings (2nd) (Cologne/Bonn) AOC certificate on January 1, 2013. All Eurowings operations will also support this operation. This move is designed to reduce costs for the struggling European operations. A new name for this expanded operation will be announced at a later date.

The company issued this statement:

Lufthansa direct European services, which include all German domestic and European services outside of the Lufthansa Frankfurt and Munich hubs, will be merged commercially and organizationally with Germanwings to form one company on the basis of Germanwings GmbH from January 1, 2013. The company’s headquarters will be Cologne.

The new company is to operate the Germanwings aircraft and the Direct Services fleet from 2013. In addition, the aircraft of Eurowings GmbH are set to fly on behalf of the new company, meaning that around 90 aircraft will cover direct services in Germany and Europe. In the first year, over 18 million passengers are to be transported.

Christoph Franz, CEO and Chairman of the Executive Board of Deutsche Lufthansa AG, said: “As part of the Lufthansa Airline Group the new company will get underway with the accordingly high quality standards.” The decision about the future brand name will only be made in the upcoming months.

“Combining our domestic German and European point-to-point services has enormous potential to improve efficiency. Our aim is to once again fly these services profitably under the umbrella of a single company. This means we are continuing to offer our guests the prospect of a dense, high-quality network even outside of our Frankfurt and Munich hubs. And our employees in these areas have the prospect of secure jobs within a company of the Lufthansa Group”, Christoph Franz emphasized.

Copyright Photo: Rolf Wallner. The Germanwings name is now likely to be retired again as its role is expanded by its parent. Airbus A319-132 D-AGWP (msn 4227) taxies at Zurich.

Germanwings (2nd): 

Germanwings routes from Cologne/Bonn:

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