Lufthansa Introduces Temporary Fuel Surcharge
With the introduction of a temporary fuel surcharge for air travel, Lufthansa is responding to the prices of crude oil and kerosene which have increased to record levels in recent months. From August 24, 2004, a surcharge of two Euro pro-route segment is charged for intra-German and intra-European flights. For the fuel-intensive long-haul routes for which fuel's share of the total costs of the flight is higher, the surcharge will be seven euro per route segment.
Thanks to its foresighted fuel hedging policy and its fuel-saving modem fleet, Lufthansa finds itself in a relatively better position than its competitors. As a result, Luithansa has been able to avoid the introduction of a fuel surcharge for a comparatively long time and to keep the surcharge lower than those of its competitors. Nevertheless, the high prices for crude oil and kerosene which have persisted for several months are a burden on the airline's expenditure side and demand a response.
...In profit after the first six months
Lufthansa is back on a successful track: aRer the first six months of 2004 the company returned to proft with an operating result of 33 million euro. Following a loss of 116 million euro in the first three months of the year, the Group earned an operating profit of 149 million euro in the second quarter. The revenue total at the half-way stage reached the record level of 8.3 billion euro. 'We used the opportunities presented by the market systerm aticaHy, we successfully omoaded our expanded capacity, and our customers appreciate our high qua!ity, Wolfgang Mayrhuber, Lufthansa's Chairman of the Executive Board and CEO, said during the presentation of the half-year results. Following the crisis-ridden year 2003 the Lufthansa Group again achieved growth in the first *ix months of this year. Selective capacity expansion led to a marked increase in passenger numbers. Mr. MayPnuber idenbfied the four pillars of Lutthansa's successful development in the first six mon~hs as "the extension of the network through new destinations and partners In the Star Alliance, the honouring of Lutthansa's quality promise, high innovative capability and absolute cost discipline." Since 2003 the Star Alliance has found seven addiffonal partners on four continents. The new Business Class concepts havs met with great acclaim in customer surveys, and Lufthansa is the first airline worldwide to offer in-flight broadband intemet access. We are excellently positioned in the growth markets. The new codesharing agreement with Air India reinforces Lufthansa's position on the Indian traffic routes," Mr. Mayrhuber added, "and our partnerships in China are bearing fnuit.- In both markets Lutthansa is the foremost European carrier.
Cost discipline remains at the focus of attenffon for both the top management and the workforce. The restnucturing of the Group companies LSG and Thomas Cook progressed further in the first six months. In particular, the recent collective labour agreements at Thomas Cook show that the Group is on the right track. "The prolongation of Lutthansa Technik's joint venture with Air China in the form of Ameco Beijing is of great strategic importance for the growth market China."
However, Wolfgang Mayrhuber cautioned against overoptimism: The way forward is clear but we have not yet reached our goal. The underlying setting in the aviation sector remains difficuit and the competitive situation fierce. Only through strict cost discipline and the rigorous continuation of the action plan that has been initiated can we operate profitably in future, too. To achieve this our company needs to become even more flexible and efficient. That is where we are concentrating our efforts."
Assuming that no new crises occur and that the situation on the fuel market does not escalate further, Lufthansa anticipates an operating result forthe full year of around 300 million euro as well as a clearly positive net result.
The successful capital increase in what is a difficult market environment demonstrated that Lufthansa also enjoys the confidence of its shareholders. The current evolution of the Lutthansa share price in no way reflects the company's true value and perspectives. "This basically mirrors sector-wide discounts," Mr. Mayrhuber pointed out. He explained that this tends to happen whenever the market price of kerosene is in the public spotlight. Lulthansa pursues an active risk management strategy and has hedged the prices of around 90 per cent of its fuel stock requirements for 2004 and 50 per cent for 2005. Our situation is thus significantiy better than that of many other airlines.
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