Lufthansa cuts profit projection
After the catch-up following the Corona slump, disillusionment has returned at Lufthansa. Ticket prices, which had on average increased by nearly a quarter in the past two years, have normalized - especially in Asia they have decreased. In addition, "inefficiencies" such as delays in the delivery of new aircraft are present. The large manufacturers Airbus and Boeing are falling behind due to shortages and their own demand issues. The Lufthansa Group has ordered 250 new planes alone, which are scheduled to arrive from 2024 to 2029.
The German Lufthansa must make significant cuts to its profit forecast and intensify its cost-saving program. Six months after, the airline is still in the red, with an expected operational result for the whole year of 1.4 billion to 1.8 billion Euro, as announced. Last year, a total of 2.7 billion Euro had been achieved. So far, the Lufthansa had calculated a cleaned result before taxes and interest of 2.2 billion Euro. Above all, the situation in the Lufthansa passenger business and its feeder airline Cityline is causing headaches for the management.
Business travelers, who were not expected to return in the same numbers after the Corona crisis, were missing, wrote Sparten-Chef Jens Ritter to the workforce. "A balanced annual result for Lufthansa Airlines is becoming increasingly challenging," it said in the statement. In the first half-year, the division slipped into the red with a loss of 427 million Euro, after a profit of 149 million Euro in the previous year. "To counteract this, an extensive turnaround program is being implemented."
The measures announced in April were not enough, wrote Ritter. Therefore, in the second step, the operating cost budgets will be reduced by 20 percent, and marketing budgets by ten percent. In administration, free positions will no longer be filled. "We are postponing, shortening or canceling all non-essential projects and reducing the expenses for essential projects by ten percent." The core brand's profit alone fell by 58 percent to 213 million Euro in the second quarter. This put the operational result in the group down by more than a third to 686 million (previous year: 1.1 billion) Euro.
After six months, there is still a three-digit operational million loss on the books. Whether the lowered forecast can be maintained depends on the further development of the profit in the Lufthansa passenger business and the year-end business of the cargo division Cargo. For the other airlines, Lufthansa Technik and Lufthansa Cargo, at least a stable result is expected for the second half of the year. The Lufthansa share gave back up to 3.9 percent after the profit warning, but at the early afternoon it was only 1.4 percent in the minus with 5.71 Euro.
Video conference instead of airplane
After the catch-up following the Corona slump, disillusionment has returned at Lufthansa. Ticket prices, which had on average increased by nearly a quarter in the past two years, have normalized - especially in Asia they have decreased. In addition, "inefficiencies" such as delays in the delivery of new aircraft are present. The large manufacturers Airbus and Boeing are falling behind due to shortages and their own demand issues. The Lufthansa Group has ordered 250 new planes alone, which are scheduled to arrive from 2024 to 2029.
The costs have significantly increased, and with simultaneous decreasing revenues, many routes, particularly in continental traffic, can no longer be economically operated, summarized Ritter and his airline executive colleagues. The targeted margin of eight percent cannot be achieved. "We therefore need to reduce costs and generate more revenue." There is a "new reality": The business travel segment, which Lufthansa had aligned its network towards, will not return to the pre-Corona level, but "will remain at the current, low level."
Many managers now use video conferences instead of getting on a plane. While there are more private trips, they mainly take place in the summer. "With our current system, we have few possibilities to compensate for such seasonal fluctuations," it was stated in the letter.
In response to the Challenges faced during the Corona Crisis, Lufthansa has announced plans to implement a budget program aimed at reducing costs by 20% in operating expenses and 10% in marketing budgets. The aviation giant, with a significant order of 250 new planes scheduled from 2024 to 2029, is facing challenges due to delays in new aircraft delivery and production issues at both Airbus and Boeing, impacting the 'Budget program' for Lufthansa. The shift towards virtual meetings, driven by the crisis, has led to a decrease in business travelers, making it challenging for Lufthansa to maintain its profits, particularly in its passenger business.
