Letter to our shareholders
Ladies and Gentlemen,
We are delighted to present a record result. Despite the impact of extremely high oil prices and turbulence in the financial markets we have increased our operating profit by 63 per cent to some EUR 1.4bn. Our net profit doubled to almost EUR 1.7bn. This means that we comfortably exceeded the goals we set for 2007. Lufthansa is a step ahead, the customers appreciate our work and the number of passengers reached new heights at 63 million for the whole Group.
In line with this result, the Supervisory Board and Executive Board are recommending a record dividend of EUR 1.25 for you. We are pleased to do so, not least because the result for the 2007 financial year shows clearly that the path we have taken is sustainable and that our strategy of focusing on our core competencies is bearing fruit.
Passenger Airlines still have updraft. All airlines in the Lufthansa Group have made great progress. SWISS though, is a particular success story. The company has had the best year in its corporate history as part of the Passenger Transportation segment. The successful restructuring and the decision to choose this form of integration within the Lufthansa Group made a major contribution to this.
We want to pursue the airlines’ course of profitable growth. This is the background to our investment in expanding and modernising the fleet, which constitutes the most extensive fleet replacement programme in Lufthansa’s history. It strengthens the Group and helps the environment.
Observing the growth in air traffic, we recruited an additional 3,000 members of staff in 2007. We have established trainee courses and invested heavily in professional training. Lufthansa generates enormous interest in the labour market, and with almost 100,000 applicants, we are able to set very demanding standards.
For the benefit of our customers, we have enhanced our products and opened up routes to new destinations. The Lufthansa network is getting larger and denser. Our latest equity investment in JetBlue, where we acquired 19 per cent of the shares, represents an additional string to our bow in the USA, which is a particularly important market for us. New cooperation partners and Star Alliance members such as Air China and Shanghai Airlines make us even more attractive in growth markets.
All the Group's business segments performed well in 2007, and contributed to our excellent overall result. All concentrated on their core competencies and continued to develop trendsetting products.
Lufthansa Cargo is well positioned and is defending its position in a tough market better than the competition. It is represented globally and locally by means of partnerships and joint ventures - in Asia with Jade Cargo, in Frankfurt with Fraport and soon in Leipzig with AeroLogic, a new joint airfreight company of Lufthansa Cargo and DHL Express. Lufthansa Cargo is on the right track.
Lufthansa Technik is global market leader and has reinforced its position in all growth areas - with new customers, new products and new production facilities, such as the flagship project for investments in Germany, N3 Engine Overhaul Services in Thuringia.
Despite higher revenue, Lufthansa Systems was not able to match its previous year's result. Suspending the FACE (Future Core Airline Environment) project on the basis of its financial forecasts made economic sense, but had a negative impact on the result for the IT Services segment. We are, nevertheless, confident that Lufthansa Systems will remain a leading IT services provider for the airline industry and will be able to consolidate and build on its strong position in the market as it continues to innovate and demand for products from its broad, cross-segment portfolio remains strong.
The gratifying performance of the airline industry as a whole also had a favourable impact on business at our "catering company". The world market leader LSG Sky Chefs improved its operating result considerably. The hard years of restructuring, the courage to adjust and the focus on growth regions are paying off. LSG is back on sound economic foundations, is profitable and growing.
We successfully disposed of the Leisure Travel segment at the beginning of the year. Bundling our resources and the need for major investment in a segment which was only peripheral to our main businesses were drivers for this decision.
Altogether, we are extremely satisfied with the figures and position of the Company; we feel there is even greater potential and we have ideas for taking the Group further. Lufthansa's Executive Board, management and staff intend to keep the crane, our corporate symbol, flying high. Despite the good results we do not want to sit back and get flabby, but need to remain healthy and attractive for the years ahead. This is the reason behind the launch of the Group-wide "Upgrade to Industry Leadership" initiative. It is also about improving profitability and return on capital. There is a lot we can still do better, and we are working on doing so. We want to become more agile, faster and more responsive. Our aim is to keep fostering entrepreneurial thinking and acting, and we intend testing new ideas and preserving proven ones.
One topic which has received, and will continue to receive, a great deal of our attention is the environment. This has a long tradition at Lufthansa. Fuel-efficient aircraft and flight operations have always been our strong suit. Both area must in today's competitive arena, and we will continue to set standards. Our endeavours to preserve the environment are reflected, among other things, in our listing in the Dow Jones Sustainability Index. Lufthansa is one of only four airlines worldwide to be included in this index, and this year, once again, with better figures.
Unfortunately, the performance of the Lufthansa share has not kept pace with that of the Company. After making excellent progress the previous year, last year mostly consisted of a sideways progression. Aviation shares were generally out of favour with investors, but the Lufthansa share is still "best in class" compared to those of our major competitors.
We intend to remain at the "top of the class" and continue to earn good marks for foresightedness, performance and quality. We believe that the prospects for the aviation industry are excellent. The economic environment remains good, despite the turmoil in the financial markets. There has been no significant change in the fundamental data and the need for mobility, so we remain optimistic - also with respect to the Lufthansa share.
- Lufthansa is well positioned, is continuing to grow and at a profit.
- Lufthansa is investing in sustainable projects, thereby focusing on a mobile fleet; at the
same time, our financial base is solid.
- Lufthansa enjoys exceptionally high customer loyalty, gets best marks for customer
satisfaction – with a brand that is stronger than ever.
- A powerful team, skilled staff and prudent management ensure competitive success.
Our intension is to keep earning your trust, that of our shareholders and of our customers, in the future. Challenges and turbulences do not daunt us. We are well prepared and flexible. Shareholders, customers and staff will all benefit equally from our growth path, which is clearly focused on sustainability. We have started this year well and again have many plans for the new year. Please accompany us as we move forward. Stay with us!
Chairman of the Executive Board and CEO of Deutsche Lufthansa AG