March 13, 2014 8:33 am

Lufthansa revives dividend as restructuring efforts take effect

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Lufthansa reinstated its dividend as the restructuring of its European network began to bear fruit; the German airline also pledged to raise operating profit this year.

The Frankfurt-based carrier plans to pay a dividend of €0.45 per share having scrapped a payout last year when it invested heavily to modernise its fleet.

The group expects operating profit to rise to between €1.3bn and €1.5bn in 2014 compared with €697m last year. That increase partly reflects a €340m positive accounting effect from an alteration in the way it depreciates aircraft on its books, however. Adjusted operating profit is expected to increase by around 40 per cent in 2014 compared with a year ago.

Christoph Franz, who steps down as chief executive at the end of April to become chairman at Swiss pharmaceutical group Roche, said: “We have strengthened the earning power of the Lufthansa group again last year . . . This performance trend is sustainable.”

Mr Franz is set to be replaced by board member Carsten Spohr, head of the passenger airlines business.

Europe’s largest airline by sales is midway through a cost-savings programme designed to improve the group’s competitiveness against short and long-haul carriers. Including positive effects related to the way it writes down aircraft, the company aims to boost operating earnings to €2.65bn by 2015, compared with 2011’s total.

However, management cautioned of the potential need for further cost-cutting measures to counter “additional headwinds” facing the airline.

European airlines are struggling with overcapacity, particularly on short-haul routes and are facing intense competition on long-haul routes from Middle Eastern carriers. Airlines are also grappling with unfavourable developments in foreign exchange markets. Lufthansa is seeking to cut costs by running more of its short-haul domestic flights under the banner of its no-frills Germanwings subsidiary.

Lufthansa’s net profit declined to €313m in 2013 from €1.2bn a year earlier when the company was boosted by the sale of shares in a travel technology company. Full-year revenues were broadly flat at €30bn.

The group will review its dividend policy to take into account the positive impact on profits that its new method of depreciating aircraft will have.

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