Lufthansa Group has missed its target of operating 85% of pre-pandemic capacity this summer. Instead, the group hit 80%.
“I had hoped to report better news regarding our operations, but this is not the case.”
Lufthansa Group CEO Carsten Spohr
“The boom in demand remains strong,” he added.
Despite not meeting the target for its flying schedule, the group returned to profitability in the second quarter (Q2) and expects to end the year that way, despite a challenging environment.
“The Lufthansa Group is back in the black. This is a strong result after a half-year that was challenging for our guests but also for our employees....Worldwide, the airline industry reached its operational limits.”
Lufthansa Group CEO Carsten Spohr
Lufthansa has had to cancel more than 7,000 flights during the current summer season to stabilize flight operations. Spohr highlighted the ramp-up demand of airlines, which went from 20% capacity levels around the Easter period to 90% a few months later. “This has been too ambitious. Lufthansa operates now 95% of all scheduled flights, as well 99% of all leisure flights, but it remains challenging,” he said.
Business Traveler Returning
Lufthansa reported a strong increase in average yields and a successful cargo segment drive that supported the quarterly result. The boom in demand for airline tickets continues.
“We are expecting more business travelers. So far we see 50% are returned compared to pre-pandemic levels. I guess this could grow to 80% next year,” Spohr said, adding that sales of its Premium Economy product are currently the most profitable among its classes. This summer has seen load factors in premium classes surpass 2019 levels, Lufthansa said.
Seventy percent of Lufthansa’s Q2 ticket sales were to customers in foreign countries. This was despite key markets like China and Japan being largely closed off still. Spohr expects that share to rise to 85-90% of sales next year as more COVID-related travel restrictions are lifted.
Lufthansa's revenues for H1 rose 164% year-on-year to €13.8 billion ($14 billion). The group posted a €393 million operating profit for Q2 but a €325 million net loss for H1. The loss narrowed 82% compared to a year earlier. The group also managed to achieve an adjusted free cash flow of €2.9 billion in H1 2021 compared to a negative free cash flow of €571 million a year earlier.
“Returning to profitability in a quarter that was marked also by high geopolitical uncertainty and rising oil prices is a major achievement,” CFO Remco Steenbergen said. “This quarter is a real turning point for our move forward“.
Fuel Hedging and Cargo
Regarding fuel hedging, Steenbergen said the group’s hedge ratio for crude oil is currently 67% at $76. For 2023, already 46% at $87 of crude oil is hedged. Lufthansa reported €3.7 billion in total fuel costs for the first six months.
The CFO also disclosed the cost of a short strike by Lufthansa ground workers last week, which saw the airline cancel nearly all its flights to and from its Frankfurt and Munich hubs. Trade union Verdi sent 20,000 Lufthansa ground workers on the “warning strike” on July 27, costing the airline a total of $35 million.
Meanwhile, Lufthansa sees continuing high demand for air freight, notably due to ongoing disruption in ocean freight. As a result, average yields in the air cargo industry remain well above pre-crisis levels. Lufthansa Cargo recorded a new record adjusted EBIT of €977 million in H1. “Lufthansa Cargo reports since 22 months one record result after another one. And the high season for cargo did not arrive so far. The next new 777F will be delivered next week“, Spohr said.
Subsidiaries reduced losses overall, the Lufthansa Group recorded passenger traffic of 42 million for H1, up from 10 million during H1 2021. In the second quarter alone, 29 million passengers flew on the group’s airlines, up from 7 million a year earlier.
SWISS
SWISS International Air Lines generated an operating profit of €45 million in H1 after recording a €383 million H1 loss a year prior. SWISS benefited from strong booking demand combined with profitability gains as a result of its successful restructuring, the group said.
Austrian Airlines
Austrian Airlines reported a small profit of €2 million for Q2, but for H1 as a whole saw a loss of €110 million as it operated 87% of its
pre-pandemic levels. That was still an improvement on the €200 million loss for the first half of 2021. Despite the thin Q2 profit, Austrian Airlines CEO Annette Mann told Hofmann Aviation that it was highly unlikely the carrier would be profitable for the entire year because of high fuel prices and an uncertain market outlook.
Brussels Airlines
Brussels Airlines reported a loss of €89 million in H1, narrowed from a loss €143 million a year prior. The Belgian flag carrier does not expect to become break-even for the entire year.
Profit Forecast
Lufthansa will be hiring around 5,000 new employees in the second half year of 2022 to match its ramp-up. “Stabilizing our operations is top of the priority [list]. We also bring back former employees,” Spohr said. “In general we are looking for additional cockpit and cabin crew for our 10 passenger airlines, on the ground, and Lufthansa Technik.”
Lufthansa Group shared its outlook for the year and expects adjusted EBIT above €500 million, which was in line with market expectations. The carrier plans to offer around 80% of its pre-crisis capacity in the third quarter of 2022.
For the full year, Lufthansa Group expects the offered capacity at the passenger airlines to amount to around 75% of 2019 levels on average.
The Lufthansa Group’s entire fleet comprised a total of 713 aircraft as of 30 June 2022. In 2023, Lufthansa plans to install 31,000 new seats across its Lufthansa and SWISS fleets.
Purchase of ITA of Italy?
He also talked about the buying process of ITA, "Our position regarding ITA has not been changed“. Italy is beside the US and our home market, the most important market for Lufthansa. We are already in Italy with one foot, we have a strong presence there, which has got even stronger this summer, also especially related to the strong traffic from the US to Italy“, Spohr said yesterday.
"We believe, that ITA needs a partner and we believe we are the right partner together with MSC. Even the unions evaluate to strike in favor for Lufthansa/MSC and in favor for privatization, that shows also that these are not empty words from my side, but our logic has been also recognized by ITA and within Italy“. "But we can not wait for ever. The longer the process regarding ITA
takes, the more ITA will be damaged. Because otherwise, it is getting more difficult for the current owner as well more expensive, because to the current owner must bring in additional money“.
"Regarding our logic for ITA, nothing has changed. We cannot go through a political process, it must be a private-economic driven process. MSC is a family-run company, we are a publicly listed company“.
Regarding airline consolidation, Spohr said: "Consolidation in our industry does not mean only, the one (airline) buys
another one. This means also that joint ventures are the current trend in the airline industry, but of course, the strong ones getting stronger, and the weaker ones getting even weaker“.