Benefiting from low fuel costs, strong demand and the collapse of Air Berlin, the German flag carrier has reported record profits for 2017. But the air is getting thinner at the top of the European aviation business.The German airline group, whose shares have soared 85 percent in the last 12 months, said Thursday its net profit for 2017 had climbed by a third to €2.36 billion ($2.91 billion), as revenue rose 12.4 percent to €35.6 billion.
Adjusted operating profits shot up 70 percent to €2.97 billion because Lufthansa’s unit costs — excluding fuel and currency effects — dropped 0.4 per cent in the year. Chief Financial Officer Ulrik Svensson said costs would have gone down further were it not for compensation paid to customers for flight cancellations at Air Berlin.
In October Lufthansa bought more than half of insolvent Air Berlin — the lossmaking airline that was once Germany’s second largest after Lufthansa and went bankrupt after losing financial support from its biggest shareholder Etihad Airways.
Read more: Germany’s bankrupt Air Berlin inventory goes to auction in Hamburg
In a statement, Lufthansa CEO Carsten Spohr noted that cost reduction had been achieved, while becoming the only airline in Europe to be awarded a five-star rating.
“We are lowering our costs where this does not affect the customer, and are simultaneously further investing in our product and service quality,” he added.
Higher fuel costs, lower profit
Last year, Lufthansa group — which includes Eurowings, Swiss, Brussels Airlines and Austrian Airlines — was also able to bury a smoldering dispute with pilots. Settling the pay and pensions battle that had sparked multiple walkouts by the firm’s 5,400 pilots bestowed a €582-million one-off windfall on the 2017 accounts.
Read more: Lufthansa to hire 8,000 workers in 2018
Lufthansa was however forced to give up a plan to acquire leisure carrier Niki from Air Berlin due to competition concerns. It is now seeking to expand its Eurowings budget unit to fill the gap left by Air Berlin in Europe. It plans to increase total capacity by 9.5 percent this year, down from initial plans in January for a 12 percent increase.
Read more: Niki assets go back to former founder Niki Lauda
Investors are concerned that European carriers are adding too many seats to the market this year, which could then put pressure on ticket prices again. CFO Svensson said pricing was “slightly positive” in the first quarter and the first half of 2018, but that the group did not have enough information to give an outlook for the second half of the year.
Looking ahead to 2018, the carrier aims for an adjusted operating profit “slightly below” last year’s level, pointing especially to a forecast increase in fuel costs of around €700 million.
Lufthansa said it will offer shareholders a dividend of €0.80 per share, some 60 percent higher than last year’s.
uhe/aos (Reuters, AFP, dpa)