Lufthansa Group

Eurowings drops into red as costs take off

Lufthansa’s fast-growing budget subsidiary Eurowings will fall into a loss this year due to escalating costs but should be back in profit next year once integration of ex-Air Berlin planes has been completed and growth has stabilised.

August 02, 2018

Integration of a large part of the former Air Berlin fleet into the budget brand is lasting longer and costing more than expected, this week’s half-year results from parent company Lufthansa showed.

Lufthansa CFO Ulrik Svensson said the costs for the integration of 76 ex-Air Berlin planes had totalled €120 million in the first six months of this year and would increase by a further €50 million in the third quarter to €170 million.

Together with higher staff costs and compensation for the recent spate of flight delays and cancellations, this would leave the Eurowings Group in the red this year. The budget airline already made an operating loss of €199 million in the January – June half-year, even though revenue increased by 9.2% to €1.9 billion.

But Eurowings is slated to return to profit in 2019 as the integration is completed, flight operations are stabilised and operating costs decline as a result. Svensson said: “With Eurowings, following its sizeable capacity increase, our prime objective is to return to profitability next year. We will also create the structures to raise Eurowings’ profitability to the levels of its prime competitors over the next three to four years.”

Overall, the Lufthansa Group was able to compensate for Eurowings’ problems thanks to solid growth in its core passenger business and other subsidiaries. Half-year net profits improved slightly to €677 million on turnover of €16.9 billion.

The Network Airlines had combined revenues of €10.7 billion and improved adjusted EBIT by 26% to €951 million. Lufthansa German Airlines increased operating profits by 16% to €660 million, and Swiss improved profits by 57% to €293 million, but Austrian dropped into the red with a slight loss of €3 million.

“The prime features of Lufthansa Group’s development in the first half of 2018 were strong growth and a simultaneous improvement in our unit revenues. Achieving both simultaneously is a significant success,” Svensson stated.

“At our Network Airlines, we were able to more than offset the added burden imposed by higher fuel costs through structural cost reductions and improved results by 26%. Without the integration costs at Eurowings, which we willingly accepted to further strengthen our market position in Europe, the Group’s result would have grown.”

Looking ahead, he added: “With continuing strong demand, we are confident that, despite a challenging prior-year basis for comparison, we will be able to report solid revenue trends for the second half of 2018, too.”

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