Lufthansa adjusts dividend policy after issuing second profit warning

Frankfurt — Deutsche Lufthansa adjusted its dividend policy and unveiled a revamp of its money-losing Eurowings arm in a bid to soothe investor worries a week after issuing a second profit warning in 2019.

Europe’s biggest airline will rebase the dividend to 20%-40% of adjusted net income, a measure a spokesperson said would provide flexibility for more attractive payments. It previously redistributed 10%-25% of earnings before interest and tax, which in 2018 resulted in an award of just 80c a share.

In a capital markets day on Monday, Lufthansa said it will also simplify the Eurowings operation to focus fully on short-haul flights away from its hubs in Frankfurt and Munich. Eurowings will also be streamlined by moving to a single German operating licence and the fleet will be standardised around Airbus SE’s A320 jet and operations, helping to shave 15% from unit costs by 2022.

“We are presenting concrete actions today which will enhance our efficiency and generate value for our shareholders,” Lufthansa CEO Carsten Spohr said. “We don’t just want to be No 1 for our customers and our employees: we want to be the first choice for our shareholders too.”

Lufthansa is seeking to calm investors after cutting 2019 profit expectations last week amid a European fare war. Eurowings in particular is being squeezed as it struggles to compete with discount specialists led by Ryanair. The group also faces potential strikes during the busy summer travel season, with cabin-crew unions set to vote on industrial action in coming weeks.

Shares of Lufthansa traded 1.1% lower at €14.65 as of 11.21am in Frankfurt, extending their decline in 2019 to almost 26%. The stock suffered its biggest intraday drop in three years on June 17 after the profit warning.

Lufthansa, which is targeting free cash flow of at least €1bn a year in the “medium term” said in a statement the new dividend policy will help achieve more continuity in payments, though the figure will be adjusted for one-time gains and losses.

The turnaround plan for Eurowings aims to deliver a profit by 2021 and means responsibility for its long-haul flights will be transferred to the company’s network airlines operation, which also runs Lufthansa’s own-brand intercontinental services.

In other measures, the Brussels Airlines unit will no longer be integrated into Eurowings and will again be aligned to the network business, with details of the plan to be provided in the third quarter.

The network operation itself aims to lift unit revenues 3% by 2022 through innovations in sales and distribution, Lufthansa said, while at the same time reducing costs by 1%-2% annually.

Bloomberg