The twin evils of a possible global recession and a volatile oil price - compounded by the financial mayhem that started from the US subprime crisis - put the airline industry in a distress situation and calling Mayday. With very high operating costs coupled with low demand, the airline industry is bracing for another “another perfect storm” with greater dimension than before, said Director General and CEO of International Air Transport Association (IATA), an organization representing around 230 airlines which comprised 93 percent of scheduled international air traffic. This bleak scenario provides impetus for consolidation in the industry and helps create better capitalized and stronger airline companies. Yet the industry's biggest concern is the fall in travel demand because of the financial crisis, which is forcing companies as well as individuals to tighten belts and forgo unnecessary trips. The price of crude oil has more than doubled in the past 12 months, raising jet fuel prices to new record levels. Admittedly, as a consequence, the airline industry is headed for tough times, top officials of Lufthansa and SWISS airlines said on Wednesday. The two airlines were merged in 2005. However, despite dark clouds looming, both Lufthansa and SWISS airlines demonstrated management acumen to make the two airline companies overcome the challenges and remain buoyant and competitive. At an annual meeting with the press on Wednesday at Rosewood Hotel, officials of both airlines said in unison that both stay financially healthy and “remain on course after the first half of 2008.” During the first six months of 2008, the Lufthansa Group generated revenues totaling 12.1 billion euros, a year-on-year increase of 19.5 percent. The traffic revenue rose by 25.6 percent to 9.7 billion euros, mainly due to the increased passenger figures with currency adjusted higher average yields in the Passenger Transportation business segment and the full consolidation of SWISS. During the first half of 2008, the operating income increased by altogether 19.1 percent to 12.9 billion euros. Operating expenses rose to 12.1 billion euros during the first half of 2008, mainly as a result of the rise in fuel costs. This was due to price and quantity-related factors, as well as changes in the group of consolidated companies. The operating result improved by 219 million euros to 705 million euros during the first six months. The group posted a net profit of 402 million euros. In 2007, this position included book gains from the sale of the Thomas Cook stake and the share buy-back by WAM Acquisition S.A. SWISS, on the other hand, generated total income from operating activities of CHF2.556 million for the first half of 2008, a 10.9 percent increase on the CHF2.304 million of the prior year period. Higher fuel prices had a severely negative impact on EBIT levels, despite the mitigating effects of the fuel hedges held. As a result, EBIT for the first half-year amounted to CHF262 million (compared to CHF311 million for the same period in 2007), of which CHF171 million (2007: CHF193 million) was generated in the second-quarter period. Thus, while remaining solid, EBIT developments showed a downward year-on-year trend. “Strong efforts from our sales teams helped keep our flights well utilized in both passenger and cargo terms,” CEO Christoph Franz said in a statement. “But the increases in our fuel surcharges did not translate into higher yields to the extent required. Despite this, however, and despite the year-on-year decline, we have posted a solid EBIT result for the first half of 2008 that lies within our expectations.” “We do see storm clouds on the horizon, though,” Franz added. “The record price of jet fuel and the international financial crisis, which is now having a growing impact on the business economies in some of our foreign markets, are a major burden that poses a particular challenge to the entire air transport sector. But SWISS is not unprepared for the turbulence ahead. Our company today is solid to the core. And we will continue to make the strategic investments we have planned in our fleet and our product, to ensure that we can further maintain our market position.” SWISS carried 6.45 million passengers in the first half of 2008, more than in any previous first-half period (January-June 2007: 5.76 million). Total first-half capacity was a 12.5 percent increase on the prior-year period in available seat-kilometer terms. The additional capacity was fully absorbed by market demand: systemwide seat load factor for the period remained unchanged from 2007 at 78.8 percent. Swiss WorldCargo also largely maintained its high cargo load factor, thanks in no small part to its successful focusing on transporting goods in high-value niche markets: first-half cargo load factor by volume amounted to 84.0 percent from 84.7 percent in the same period last year. Notwithstanding the erratic and unstable outlook in the industry with foreseen losses of $10-12 billion this year that was already causing many airlines to cancel schedules and significantly reduce their fleet and personnel capacities, Lufthansa Chairman and CEO Wolfgang Mayrhuber said in a statement that the “time is now more right than ever to focus on the things that one is actually in control of.” Besides the quality, these include particularly efficiency, internal costs, flexibility and provisions, for example, in the form of fuel price hedging, he added. Mayrhuber, commenting on the future developments, said the company has great opportunity to emerge relatively stronger from the increasingly difficult market and tough competition. “We have shown in the past that we are prepared for these kinds of situations and are capable of reacting to them. Our financial strength and operating adaptability will grant us the opportunity to remain profitable and strong,” he noted. The Lufthansa chairman remains confident that the abilities to implement a goal-oriented response, result-oriented management and additional cost limiting measures will not be in vain. Marcel H. Biedermann, managing director, head of Intercontinental Markets, SWISS, said the airline will focus more on premium customers. “When the going gets tough,” the emphasis will concentrate heavily on new investment, sales & distribution, greater efficiency and cost management, he added. In the Gulf region, Lufthansa and SWISS are the only European carriers which jointly connect all major gateways in Saudi Arabia, Riyadh, Jeddah and Dammam and neighboring Kingdom of Bahrain with their hubs in Frankfurt and Zurich with 21 frequencies per week. All flights operate with a three-class onboard service. __
