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ECB mustn't intervene to weaken euro: Lufthansa CEO

Thursday, 31 Oct 2013 | 8:35 AM ET
ECB musn't weaken euro: Lufthansa CEO
Thursday, 31 Oct 2013 | 12:35 PM ET
Despite the strong euro hitting Lufthansa's revenue, CEO Christoph Franz says the ECB should steer clear of trying to soften the currency.

The strong euro has weighed on Deutsche Lufthansa's earnings this year, but its chief executive said Thursday that the European Central Bank (ECB) should not intervene to weaken the currency.

Lufthansa — Europe's biggest airline with a market capitalization of around 6.7 billion euros ($9.2 billion) — cited currency strength as one reason behind its decline in revenue. On Thursday, the German airline reported net profit for its core airline passenger business of 247 million euros for the first nine months of the year, a sharp decline on the 697 million euros reported in the same period of last year. Revenue was also lower than over the same period in 2012.

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The comments by Lufthansa CEO Christoph Franz follow calls by some economists — such as Lorenzo Bini, a former member of the ECB governing council — for the central bank to attempt to weaken the region's currency, perhaps via lower interest rates.

However, Franz insisted the ECB was right not to act.

"I don't think we are in times when the central bank should intervene. We have to live and to cope with volatile exchange rates," Franz said in an exclusive interview with CNBC on Thursday.

"We have several tools and instruments to cope with this situation. First of all hedging tools, which are in place. And with regards to the business, we can try to shift demand from, say, the weaker currency markets to the stronger currency markets, which also helps to a certain degree."

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The euro has gained over 3.0 percent against the dollar since the start of the year and over 4.5 percent against the British pound. This was mostly driven by dollar weakness amid uncertainty about when the Federal Reserve would begin tapering off its massive asset purchases.

In a news release accompanying its results, Lufthansa said it expected to achieve an adjusted operating profit of between 900 million euros and 1 billion euros in 2013, with the strong euro weighing particularly on revenues in the passenger business.

"We have reduced our costs on a sustainable basis, while at the same time further improving the quality for our customers. Exchange rate effects that reduce our revenue demonstrate to us clearly how important it is to be cost efficient," said Lufthansa Chief Financial Officer Simone Menne.

The company is undergoing a hefty restructuring program, called SCORE, which is designed to boost income and cut costs. The program is the brainchild of Franz, but he will quit next year — midway through the project — to become chairman of Swiss pharmaceutical giant Roche.

"The point of time when I am going to leave the company in the middle of next year will be a moment when we have not only developed but decided and implemented most of those measures... I think it is a very good milestone to take this kind of decision," he told CNBC.

Last month, Lufthansa announced its largest-ever aircraft order, worth 14 billion euros ($19.0 billion). The purchase of 34 Boeing and 25 Airbus jets was also the biggest single order in German industrial history.

Lufthansa stock closed down around 2.9 percent on Thursday, underperforming both the European travel and leisure index and the German Dax.

—By CNBC's Katy Barnato. Follow CNBC on Twitter: @CNBCWorld

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