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updated: 8/30/2011 7:56 AM

Lufthansa ceo predicts profit gain on fuel hedging, maintenance

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Bloomberg News

Deutsche Lufthansa AG Chief Executive Officer Christoph Franz said Europe's second-biggest carrier aims to boost earnings this year as fuel hedging and non-airline operations leave it better placed than rivals.

Franz said he's targeting a "positive result" versus 2010, when earnings before interest and tax totaled 876 million euros ($1.26 billion). Lufthansa is hedged on 75 percent of 2011 fuel needs, according to its website, while the Lufthansa Technik and LSG SkyChefs overhaul and catering units aren't subject to a German aviation tax, Franz said, diminishing the levy's impact.

"We are relatively stable in an unstable industry," Franz said last night at a briefing in Frankfurt, where Cologne, Germany-based Lufthansa has its main hub. "We had not at all taken the rise in oil prices into account, but have been protected against it by our hedging policy."

Air France-KLM Group, which posted net income of 613 million euros in the year ended March 31, reiterated on July 28 that its goal is simply to be profitable this year. Both it and Lufthansa said that day that they would rein in capacity after earnings for the three months through June missed estimates.

The International Air Transport Association predicts a 78 percent drop in airline-industry net income this year to $4 billion, delivering a 0.7 percent margin, as earnings are crimped by fuel costs, a sluggish economy and higher taxes.

Lufthansa has said hedging positions benefit it when oil is priced above $94 a barrel and estimates its full-year fuel bill at 6.4 billion euros, down from 6.8 billion euros originally. Brent crude for October settlement was priced at about $112 today on the London-based ICE Futures Europe exchange.

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The German carrier is also trimming winter capacity growth to 6 percent from 12 percent by using smaller planes, deferring planned routes and shutting the Lufthansa Italia unit, while wrapping up a program to cut costs by 1 billion euros from 2008.

Lufthansa will continue with efforts to turn around its unprofitable British Midland and Austrian Airlines units, Franz said in the briefing, while declining to rule out disposing of the businesses should those efforts prove unsuccessful.