Gaining altitude

Lufthansa restructure puts it on right flight path

It will be a long haul but Lufthansa might get there eventually. Headline numbers for the first six months of 2013 were pretty unimpressive: so unimpressive, in fact, that the shares fell almost four per cent by midday on August 2.

Scarred with costs of a painful restructuring, operating profit dropped 69 per cent in the first half. A number of erratic factors distort the picture: Lufthansa's sale of British carrier bmi inflated last year's results. Accounting rules on pension liabilities generated an odd uplift in the first half of 2012.

Then there is the cost of Lufthansa's ambitious restructuring programme. That knocked euro 71 million off operating profit between January and June.

Beneath the surface, however, things are looking better. Underlying operating profit rose by euro 233 million. Moreover, the bulk of this progress was made in the second quarter, implying the momentum is accelerating.

What has it done? Lufthansa moved the same number of passengers with five per cent fewer flights. Using more fuel-efficient aircrafts, it cut fuel costs by euro 90 million. In a move that might appear cheeky given lower fuel costs, the airline introduced a fuel surcharge of euro50 for business-class passengers on long-haul flights.

Relations with unions, which have looked threatening, have settled as well. Lufthansa's restructuring programme is also on track. The target for this year is to secure gross efficiency gains of euro 740 million, which looks achievable.

Lufthansa's medium-term goals will be built on the success of its full service and long-haul offerings. Much, however, depends on the fortunes of its revamped no-frills airline Germanwings.

This has taken over the bulk of Lufthansa's loss-making short-haul business. It has much to prove: national flag carriers have a poor record of emulating the successes of low-cost operators such as Ryanair and easyJet. But Lufthansa might well find its way to the right flight path if it learns from the exper-ience of less successful fellow travellers.