Deutsche Lufthansa AG (LHA.XE) became the latest airline to pass
its woes on to its shareholders as it scrapped its dividend for
2012, underscoring the long-running crisis faced by the region's
flag carriers.
The move, which was announced late on Tuesday, forms part of an
existing cost-saving plan aimed at ensuring the German airline can
upgrade its fleet without putting its credit-worthiness in jeopardy
by taking on extra debt, with its profitability under pressure. It
triggered a slide in the company's share price on Wednesday.
Europe's biggest airline by passenger numbers, Lufthansa has a
borderline investment-grade rating from Standard & Poor's--rare
among publicly owned national airlines.
Its cost-cutting program, aimed at saving 1.5 billion euros
($2.01 billion) over the next three years, has involved the
elimination of thousands of jobs and last year provoked strikes by
staff.
Lufthansa's woes are far from unique. Management at Iberia, the
Spanish airline owned by British Airways parent International
Consolidated Airlines Group SA (IAG.LN), have faced more than a
year of sporadic strikes as it seeks to cut thousands of jobs and
agree on new labor deals in a bid to survive. Similar measures are
under way at Air France-KLM (AF.FR), which last paid a dividend on
its 2010 results, and perennially unprofitable Scandinavian carrier
SAS A/B (SAS.SK).
National airlines, which run short-haul networks to feed traffic
to their long-distance flights, are struggling with high fuel
prices and intense competition from discount carriers such as
Ryanair Holdings PLC (RYA.DB) and easyJet PLC (EZJ.LN).
Experts say there is always tension in the airline industry
between the interests of shareholders and creditors because the
business is highly cyclical and capital intensive.
"The industry doesn't lend itself to dividend plays because of
high volatility," said Adrian Yanoshik, an analyst at Barclays
Capital. "Lufthansa is one of the very few legacy airlines to make
regular dividends at all."
Some investors said the disappointment should be short-lived
because the airline has its eyes on long-term returns, which depend
crucially on the airline flying more fuel-efficient aircraft in the
future given the low likelihood that fuel prices will fall.
"We have previously called for a suspension of dividend
payments, because a payout of EUR0.25 per share is little more than
a symbolic shareholder return," said Michael Gierse, a fund manager
at Union Investment, the fund-management unit of Germany's
cooperative banks. "For the first time in the company's history,
aircraft are being grounded instead of flying them to cover the
fixed costs. This requires adjustments in all areas and
consequently shareholders also have to "suffer'," said Mr. Gierse.
Union Investment holds around 0.5% of Lufthansa shares.
Lufthansa said it plans to place orders for eight new long-haul
planes as well as 100 short- and medium-haul jets, increasing the
company's order book to 239 aircraft, due for delivery through 2025
and with a total list price of some EUR23 billion.
Lufthansa paid out EUR114.5 million in dividends out of its 2011
earnings, down from EUR274.8 million the year before and a fraction
of the EUR572.4 billion paid out in 2007. The airline paid no
dividend for 2009.
Its smaller rivals appear more generous. U.K.-based easyJet
sharply increased its dividend for 2012, while Irish flag carrier
Aer Lingus PLC (EIL1.DB) raised its payment by a third. Finland's
Finnair Oyj (FIA1S.HE) surprised investors by proposing to resume
its dividend due to the benefits of recent cost-cutting
measures.
Write to Jan Hromadko at jan.hromadko@dowjones.com and Marietta
Cauchi at marietta.cuachi@dowjones.com
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