Major problems with the core brand are spoiling the Lufthansa Group’s balance sheet. Shortly before joining ITA, the company must find a new strategy for the group’s largest airline.
The Lufthansa Group has significantly reduced its profit forecast for the current year. The reason is major problems at the core company Lufthansa, which are dragging the entire group down. Since the winter, the fleet with the crane has been flying miles behind its financial targets and has accumulated a loss of 427 million euros after six months – a good half a billion less than in the same period last year, when a profit of 149 million euros was already recorded as of June 30.
While the other group companies such as Swiss, Austrian, Eurowings, Brussels and Lufthansa Technik are largely on schedule, costs and revenues are diverging at the core company. While ticket sales rose almost automatically after the Corona crisis was overcome, the market has now largely returned to normal, reports airline boss Jens Ritter in an internal letter.
At the same time, the competition is expanding its offerings much faster than the crane. The result: Even with long-haul flights to Asia or across the Atlantic, the profit per passenger is getting smaller and smaller.
Tourists cannot replace business travellers
Ritter continues: “We are experiencing a ‘new reality’: not a crisis, but a structural change.” This means that the many tourists on board do not fill the planes all year round – the business travelers are sorely missed. “With our current system, we have little opportunity to compensate for such seasonal fluctuations,” Ritter states.
Management has initially started a tough cost-cutting program for the core brand. Material costs will be cut by 20 percent across the board and a general freeze on new staff will be imposed in administration. All projects that are not essential to operations are to be postponed, cut back or stopped in order to perhaps still break even by the end of the year. Reaching the break-even point is “increasingly challenging,” according to the mandatory announcement to the stock exchange on Friday.
20 percent less productivity
According to “Handelsblatt”, CEO Carsten Spohr is alarmed: “Things are not going at all as we imagined,” he is said to have said at an employee forum. Lufthansa Airlines operated 20 percent fewer flights than before the pandemic, but has the same number of employees as in 2019. That means 20 percent less productivity.
The problems come at an inopportune time for the company’s CEO. The company’s entry into the Italian state airline Ita has only just been approved by the EU. For the completion of the deal, which is planned for the fourth quarter, he needs large management capacities – in Rome and Frankfurt. And of course capital that Lufthansa and Co. are actually supposed to generate.
Forecast capped
For the full year, the group is now only expecting an operating profit of between 1.4 and 1.8 billion euros (adjusted EBIT), after previously targeting around 2.2 billion euros. In the second quarter, operating profit was only 686 million euros, compared to 1.1 billion euros in the same period last year. The outlook now depends largely on the earnings development at Lufthansa Airlines and the traditionally important fourth quarter at the freight subsidiary Lufthansa Cargo.
City Airlines can do it cheaper
The savings program will not be enough in the long term, explains Lufthansa management, which is referring to a fundamental conflict with staff and the unions that are prone to strikes. The recently launched company City Airlines is to operate an increasing number of European flights under the Lufthansa logo, which can only be at the expense of the existing Lufthansa Classic. This is significantly more expensive to operate than the new airline, which has not even signed collective agreements for its flight staff. The hope is that Lufthansa will not become a pure long-haul airline, but will also offer profitable short and medium-haul flights in the future, Ritter asserts. The conditions for this have been better before.
Announcement Lufthansa
Source: Stern
