- Low fares: Lufthansa to thin flight schedule
Lufthansa is trimming its flight schedule due to global pressure on airfare prices. The rapid growth in supply over the past few months has increased competition and given customers more choices, with Chinese airlines particularly driving down prices in the economy class, the company reports. CEO Carsten Spohr describes this as a "normalization" of prices, which had significantly increased following the restart after the COVID-19 pandemic.
First and foremost, the core Lufthansa company faces the challenge of aligning its flight offerings with the changed demand, with significantly more leisure travelers on board. The crane airline is more dependent on the Asian market and business travelers, who have not fully returned since overcoming the COVID-19 pandemic.
A cost-cutting program is intended to help, with CFO Michael Niggemann stating that Lufthansa Airlines contributes only 40% of the operating result despite accounting for 60% of the capacity. The company plans to shift short and medium-haul flights to other, more cost-effective airlines and use its approximately 50 leased aircraft primarily for seasonal peaks. Within the group, the new subsidiaries City Airlines and Discover Airlines are expected to grow at the expense of "Lufthansa Classic" in the coming years. Theoretically, Lufthansa could eventually follow the example of competitor British Airways and only offer long-haul flights in the future, with other companies handling feeder flights.
Flights from Munich and Frankfurt are on the chopping block, with many cancellations affecting Munich's hub. There will be fewer Lufthansa connections to Chicago, Los Angeles, and San Francisco from late July, and flights to Denver will be suspended from February 17, 2025, following previous suspensions to Washington and Osaka. Smaller Airbus A350 jets will replace the larger A380s on flights to Los Angeles in January and February. In Frankfurt, some flights to Los Angeles will be canceled from late July, and Denver will not be served from January 8 to February 15. The Frankfurt-Münster and Munich-Tallinn routes have disappeared from the winter schedule, which begins at the end of October.
In a challenging start to the spring, the Lufthansa group generated significantly less profit than in the previous year. The company cited strike costs of around 100 million euros and an average decrease of 5.3% in ticket revenues as reasons for the weak second quarter. The group's consolidated profit for the second quarter was 469 million euros (2023: 881 million euros), with quarterly sales increasing by 7% to 10 billion euros. The flight offering grew by 11% year-on-year. Spohr confirmed the target of flying 92% of the pre-pandemic capacity for the full year 2024.
Loss-bringer was particularly the core entity Lufthansa, which after six months had flown in a loss of 427 million euros and was thus trailing by a good half a billion compared to the same period last year. The company is also suffering from delayed deliveries of new aircraft, for which, for example, pilots have already been fully trained. Including higher fuel prices and lower freight rates, Lufthansa loses a two-digit million amount per year for every long-haul flight not replaced by a new model, said Niggemann. Actually, Lufthansa wants to remove four inefficient aircraft models with a total of 50 aircraft from the fleet by 2028.
On the other hand, the maintenance subsidiary Lufthansa Technik had a record year, increasing its revenue in the first half by 18 percent to 1.9 billion euros. Spohr describes the recently threatened partial sale of the subsidiary as "a jewel in the portfolio". The company also expects profits at or above last year's level for other airlines such as Swiss, Austrian, Brussels, or Eurowings.
For the full year, the group now expects an operating profit of between 1.4 to 1.8 billion euros (adjusted EBIT), down from the previously targeted 2.2 billion euros. In the second quarter, the operating profit was only 686 million euros, compared to 1.1 billion euros in the same period last year. Due to the problems with the core entity, the group also expects a decreasing operating profit in the current quarter compared to 1.5 billion euros in the same period last year.
Lufthansa Group Q2/2024 Results Statement Destatis on falling ticket prices
In the face of global pressure on airfare prices, Lufthansa's CEO, Carsten Spohr, acknowledges a "normalization" of prices in the industry after the COVID-19 pandemic. Amidst Lufthansa's cost-cutting measures, the CFO, Michael Niggemann, reveals that despite contributing 60% of the capacity, Lufthansa Airlines only generates 40% of the operating result.
