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Home | Update | Latest Issue | Gallery | FR Profile | Datafiles | FR 7/97 LUFTHANSA 1996 RESULTS NO CAUSE FOR JOY by Heiko Reuter At first glance, Lufthansa does not have much reason to worry. In 1996, the concern managed to generate a profit of DM686 million before taxes in spite of the difficult market condition. The turnover increased by 4,8 percent up to DM20,9 billion, the net debt decreased by DM600 million to now DM1,4 billion. This looks firm and healthy, even compared to the company's record year 1995 (DM756 million before taxes). The airline concern seems to be in a remarkably good position being only a few months away from its rest-privatization which is projected for the end of 1997. According to the German business magazine Capital, this looks too good to be true, saying that Lufthansa's financial director Klaus Schlede has massaged the company's balance. In reality, the concern allegedly generated profits of only DM91 million, says Capital, reportedly being able to prove its statements with confidential papers from the airline. Klaus Schlede promptly disclaimed. Everything is nonsense and the numbers are being wrong. Still, the Lufthansa board has not achieved its objectives for 1996. Lufthansa head Jürgen Weber openly admits that the concern is in a cost fix, having to fight massive problems on the cost side: company expenditures are increasing much stronger than turnover and earnings. Weber says that while being able to control this cost which can be influenced by the company, other, such as the kerosene price, are beyond the influence of the airline. The jump in kerosene prices resulted in considerable extra cost of DM323 million in 1996. The personnel cost increased by 6,6 percent (DM5,8 billion) even though the number of employees practically stagnated (plus 0,4 percent), the reason, among others, being an increase in social security contributions. The "Program 15", which Weber had initiated to reduce the costs per offered seat-kilometer to below 15 Pfennig, is facing a halt. Mainly due to the high kerosene price the number was 0.5 Pfennig above the 1996 goal of 17.2 Pfennig. Below the bottom line, Lufthansa has missed the savings plan in 1996 by DM300 million. Program 15 is supposed to save DM1.5 billion over the next four years. However, a rationalization potential of only DM800 million has been earmarked yet. There is no indication where the remaining DM700 million will be generated from. Lufthansa is facing a strong headwind on most markets. Again, the airline has generated losses on the German domestic market in 1996. Carl Michel, head of the competing Deutsche BA, wants to have his airline's turnover doubled to DM one billion within the next two to three years. In the European market, in which Lufthansa is generating 39 percent of its earnings, the airline is already being attacked by cheaper operating carriers. According to Klaus Schlede, LH flew most profitable in America. Also, the international alliances generated DM200 million for the German carrier. Jürgen Weber still believes they are on the right track, saying that since the kerosene prices have recovered the company is optimistic in regard to the costs in 1997. The same applies to the earnings, says the man who saved the concern five years ago. The most recent figures support Weber's assumptions. In the first three months of this year, Lufthansa was able to generate a plus of DM20 million - the first time in the company's history that a first quarter was in the black. Everything is under control - at least at a first glance. From page 24 of FLUG REVUE 7/97 Home | Update | Latest Issue | Gallery | FR Profile | Datafiles | FR 7/97 Copyright 1997 by Motor-Presse Stuttgart. All rights reserved. Last updated June 4, 1997