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Lufthansa 2Q Loss Due to SARS, Economy

August 13, 2003

FRANKFURT, Germany (AP) _ Cost cuts helped Lufthansa hold down its second-quarter loss, but executives warned Wednesday that profits must wait for a better economy.

The company lost euro34 million ($38 million) in the April-June quarter, during which it faced drastic falloffs in passengers to Asia due to the outbreak of the SARS respiratory illness, and effects from the war in Iraq.

The loss contrasted with a euro160 million net profit in the same period a year ago, and follows losses posted by British Airways and KLM _ both hit by the same factors. The Association of European Airlines says that while North Atlantic routes are improving from last year’s slump, traffic within Europe and to and from Asia remained down by 2.2 percent and 12.1 percent respectively since Jan. 1 compared to a year earlier.

The airline’s chief executive, Wolfgang Mayrhuber, pointed to an operating profit of euro65 million ($73 million) for the quarter, which he said indicated the airline was weathering difficult circumstances well by cutting costs and seat capacity. Operating profit excludes financial items such as taxes and interest, but many companies use it as a benchmark.

Staffing costs shrank 3.3 percent compared to a year ago, partly from a reductinin work hours, Lufthansa said.

``Despite weak macroeconomic momentum, the Iraq war and SARS, we achieved a fine result and thereby strengthened our position in international competition,″ Mayrhuber said in a statement. ``The aviation industry is still operating in a difficult economic environment. But it looks like we have now come through the worst.″

The airline had to cut the number of flights to Asia during the quarter _ for example reducing from 13 to one the number of weekly flights to Hong Kong at the height of the SARS epidemic _ cuts it has mostly restored. Overall, revenue fell to euro3.87 billion ($4.4 billion) from euro4.32 billion a year ago.

Even though SARS has subsided and the war in Iraq is over, the airline did not predict an upturn, pointing to the sluggish global economy that has depressed demand for air travel. ``No marked improvement can be expected in the second half of the year,″ it said.

The airline stuck with its forecast that it will show an operating loss for the year. Last year it made euro718 million ($811 million) in operating profit.

Alexander Kachler, an analyst at Merck Finck private bankers in Munich, said the second-quarter operating earnings surprise would help the stock in the short term. The shares rose 1.3 percent to euro11.35 ($12.85) in Frankfurt trading.

``I ask myself if this is sustainable,″ he said, noting the cautious outlook. ``For the outlook to improve, the economic environment must get better.″

Analyst Nils Machemehl at M.M Warburg in Hamburg said the operating profit was ``a big surprise.″

``But overall the situation has not really changed,″ he said, also stressing the outlook.

For the first six months of the year, the airline had a net loss of euro392 million ($409 million) on revenues of euro7.57 billion ($8.54 billion). That beat the average expectation of a euro451 million ($510 million) loss among analysts surveyed by Dow Jones Newswires, and compared with a loss of euro27 million on revenue of euro8.17 billion in the first six months of 2002.

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