Lufthansa cuts 1Q2016 operating loss, but mainly thanks to one-offs and fuel. Cost focus still key

The Lufthansa Group narrowed its operating loss in the seasonally weak 1Q2016, in spite of a fall in revenue. A weak pricing environment was more than offset by a reduction in unit costs. This was principally thanks to lower fuel costs, but there was also a welcome fall in underlying ex fuel CASK at constant currency.

However, although Lufthansa Passenger reported higher profits than in 1Q2015, there was a decline for SWISS, Eurowings, Cargo, MRO and Catering. For LCC Eurowings, this was partly due to start-up costs in long haul and at Vienna, but it also reflected strong LCC competition in Germany. Lufthansa is still considering whether to add Brussels Airlines to its Eurowings operation. Austrian only improved its result because of a one-off gain and, moreover, it seems that the improvement in operating profit at the Group level compared with 1Q2015 was due to one-off items.

Lufthansa still expects to post a slightly higher adjusted EBIT result in 2016 than in 2015. Nevertheless, its 1Q2016 report demonstrates that, for all its restructuring progress, it is not achieving results that are consistent with the broader cyclically high margins of the global airline industry. Further CASK reduction remains the focus.