Lufthansa has this week released its annual report for 2016.
The company has maintained its profitability, posting adjusted EBIT margins of 5.5%, only slightly down on the previous year.
Lufthansa CEO Carsten Spohr said, "In a very demanding market environment, we successfully kept the Lufthansa Group's margins at their record prior-year levels, through consistent capacity and steering measures and, above all, through our effective cost reductions. Based on this good financial development, all our business segments developed positively in their respective markets. And by expanding our commercial joint ventures for the network airlines, fully acquiring Brussels Airlines and concluding the comprehensive wet-lease agreement with Air Berlin we have also strengthened our strategic position."
Lufthansa says the new distribution strategy unveiled in 2015 "is starting to pay off" and that the Distribution Cost Charge (DCC) levied on bookings made via a global reservation system has "become established in the market".
It added, "The share of direct bookings at the network airlines, particularly in their home markets, has continually increased. Negotiations on direct bookings with customers, tour operators, travel agencies and technology providers are delivering a steady stream of successes. Demand has also increased for complementary services such as upgrades, baggage services, hotels, rental cars and insurance. The new distribution strategy makes it possible to provide attractive and varied offers that meet the ever more individual and dynamic requirements of sales partners and corporate customers, while also enabling improved yield management."
The company said that it achieved a 2.5% reduction in costs excluding fuel and currency effects during 2016. This reduction has largely been driven by lower staff costs.
It is interesting to look at a small number of the airline's costs relating to distribution. Our chart this week looks at how some of those costs have changed year on year.
It is interesting to note the increased costs for distribution systems, despite the introduction of DCC. While increased passenger numbers (up 1.8% year on year) will have increased these costs, this does not explain the 9.2% increase in distribution system costs. Sales commissions have fallen in line with expectations as more business goes direct.