Lufthansa sees profit improvement but more cost cutting expected

Improved Q1 results bolstered by cheaper fuel.

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By :  ,  Financial Analyst

Along with other European airlines, Lufthansa has reported improved first-quarter earnings. However, cheaper fuel has played a part in the company’s positive financial results – and further action will be needed to lower costs.

This is especially true since the company is facing a rising pension burden and staff-related costs, Reuters reports.

The German airline is currently in a dispute with pilots over retirement benefits and the expanding of low-cost services. Talks to resolve these issues were suspended following the Germanwings plane crash on March 24th.

Luftansa’s first quarter was overshadowed by the crash in France that killed all 150 passengers on board. Evidence suggests the co-pilot deliberately locked the captain out of the cockpit and steered the Germanwings plane into a mountainside.

The terrible events had an affect on bookings for the airline – a low-cost subsidiary of Lufthansa – for a short time. However, Lufthansa chief financial officer Simone Menne said there was no impact on the company’s finances, as claims and other costs are being handled by insurers.

Other airlines are have also seen improvements in the first quarter.

Ryanair, for example, has seen a 16 per cent rise in April passenger numbers. After undertaking cost-cutting measures, IAG – the parent company of British Airways and Iberia – has reported a profit during the period which is usually seen as a loss-making time of year.

Lufthansa has confirmed a target of 1.5 billion euros (£1 billion) for adjusted earnings before interest and tax, and they say the figure is unlikely to be exceeded significantly.

“We continue to see great pressure to act,” Ms Menne said in a statement.

The company says that unit costs rose 2.8 per cent in the quarter. Yields, which provide a measure of ticket prices, dropped 2.9 per cent before excluding currency effects. The euro, which has weakened more than 11 per cent against the dollar meant that Lufthansa’s revenue was boosted for the first quarter, but it also meant that the benefit of cheap oil was not as strong. The company estimates its 2015 fuel bill to be 6.2 billion euros.

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