High fuel costs and air traffic tax burden Lufthansa result for 2011

Group programme SCORE aims to increase operating margin long term 

However, Franz also emphasised: “Although the operating profit for 2011 is generally 

pleasing in itself, the operating margin is not.” The Groups adjusted operating margin for 

2011 was 3.4 per cent. This is why Lufthansa rolled out a Group-wide programme called 

SCORE in January with the aim of sustainably improving its result by at least EUR 1.5bn by 

the end of 2014. By implementing this scheme, the Group wants to be able to fund its capital 

expenditure in the long run and safeguard its financial solidity. “We have to respond to the 

change in our industry with flexible structures that enable us to remain Europes number one 

in the future. We also want to keep investing in innovative products for our customers,” said 

Franz. Lufthansa is taking various steps in a bid to achieve its goal, such as realising 

potential synergies in the Groups purchasing and making further improvements to the 

harmonisation of the airlines flight plans. Franz added that it would also be necessary to make both administration and management functions leaner and to pool shared services in 

order to further reduce the Groups overhead costs. 

Passenger business suffers from high fuel costs 

The Passenger Airline Group business segment contributed EUR 349m towards the Groups 

operating profit for the year after increasing its revenue to EUR 22.3bn. Higher fuel costs 

were the main reason behind the 44.5 per cent reduction on the previous years figure of 

EUR 629m. The Group also paid air traffic tax totalling EUR 361m to the German and 

Austrian authorities. The business segment reduced its planned growth for 2012 from 9 to 3 

per cent in the third quarter of 2011 and now anticipates a total increase of 2 per cent in 

available seat-kilometres this year. Meanwhile, Lufthansa Passenger Airlines is examining 

zero year-on-year growth. It accounted for EUR 168m of the Passenger Airline Groups 

operating result. This represents a fall of EUR 214m compared with the previous year. 

However, the company upped the share of premium income on long-haul routes by 1.7 

percentage points to over 50 per cent – even though Economy Class now accounts for a 

larger proportion of seat s than before, following the fleet modernisation. The Climb 2011 

programme to safeguard earnings, which was wrapped up at the end of the year, also 

enabled Lufthansa Passenger Airlines to reduce its unit costs (adjusted for fuel costs) by 2.5 

per cent overall and by 4 per cent on short-haul routes. SWISS proved best able to 

compensate for the high fuel prices and weak economic environment, generating an 

operating profit of EUR 259m. However, this was EUR 39m down on the previous years 

figure. Although Austrian Airlines improved its operating result by 6.1 per cent, it still posted 

an operating loss of EUR 62m. For this reason, restructuring the company remains a top 

priority and efforts have been stepped up in this field. Air traffic tax had a major impact on 

Germanwings operating result, which came in at EUR -52m on 31 December 2011. 

Compared to other airlines Germanwings was hit the hardest by the air traffic tax, which 

amounted to 5.4 per cent of its revenue. 

Freight and service business segments make a positive contribution to consolidated 

operating result 

As in the past, the Group benefited from its structure: the other business segments 

contributed towards the Groups overall result with an operating profit. In the Logistics 

business segment, Lufthansa Cargo achieved an operating result of EUR 249m – the second 

best in its history. Flagging industry growth in the second half of 2011 and rising fuel costs 

were the main reasons why it was unable to match the record figure from 2010. At this stage, 

Lufthansa Cargo has no plans to increase capacity this year as against 2011. Lufthansa 

Techniks operating performance developed well, but the company fell marginally short of its 

previous years result and posted an operating profit of EUR 257m due to provisions for longterm 

contracts. Thanks to the realignment of Lufthansa Systems, the IT Services business 

segment almost doubled its operating profit to EUR 19m and stabilised its revenue. In the Catering business segment, LSG Sky Chefs grew both its revenue and its operating profit, 

recording a figure of EUR 85m for 2011. 

Group anticipates an operating profit in the mid three-figure million 

euro range for 2012 

The Lufthansa Group is anticipating an operating profit in the mid three-figure million euro 

range for the current financial year. Franz expects all the business segments to contribute 

towards this result, with operating profits forecast across the board. However, he added that 

further developments in the business environment – and fuel prices in particular – would 

determine precisely how high the Groups operating profit would be at year-end. Franz 

emphasised: “We are determined to keep positioning ourselves at the forefront of the 

competition in the future. We have the resources to do this on our own. We have paved the 

way to take the necessary steps and have already seen some initial results. The Executive 

Board is determined to carry on consistently working towards success.” 

2011 in figures 

In 2011, the Lufthansa Groups revenue totalled EUR 28.7bn – an increase of 8.6 per cent on 

the previous year. Traffic revenue improved by 10.8 per cent to EUR 23.8bn. Overall, the 

Groups operating income went up to EUR 31.2bn in the reporting period, an increase of 6.7 

per cent.  Operating expenses rose by 9.3 per cent in 2011 to EUR 30.4bn. One of the main reasons 

was the EUR 1.3bn rise in fuel costs, which came to EUR 6.3bn in total. This represents a 

price and volume-driven increase of 26.4 per cent. This figure already includes a positive 

hedging result of EUR 694m. Fees and charges were up 15.8 per cent on 2010. 

The Lufthansa Group generated an operating profit of EUR 820m in 2011, down by EUR 

200m in comparison with the previous year. Altogether the net result for the period was EUR 

-13m. One year earlier, the Group posted a figure of EUR 1.1bn. The net loss includes a 

negative valuation effect from changes in the time values of hedging transactions in line with 

IAS 39 and the result of discontinued operations containing bmi. Earnings per share 

consequently came to EUR -0.03. 

Lufthansa invested EUR 2.6bn in the reporting period. Of this sum, EUR 2bn went on 

expanding and modernising the fleet. Cash flow from operating activities came to EUR 2.4bn 

and free cash flow (cash flow from operating activities less net capital expenditure) to EUR 

713m. At the end of 2011, the Group had net debt of EUR 2.3bn. Its equity ratio was 28.6 per 

cent.