Airline makes losses – Higher ticket prices expected

Frankfurt Lufthansa is slowly working its way out of the red. In the first quarter, Europe’s largest airline was able to significantly reduce the adjusted operating loss before interest and taxes (EBIT) from a good one billion euros to 591 million euros. At the same time, sales doubled to 5.4 billion euros. The company announced this on Thursday morning.

“Crisis was yesterday. The Lufthansa Group is going on the offensive again,” said CEO Carsten Spohr on Thursday morning: “People are traveling again.” The airline group with the brands Lufthansa, Swiss, Brussels Airlines, Austrian Airlines, Eurowings and Lufthansa Cargo has thus met the estimates of the analysts. They had predicted a sales increase of a good 100 percent.

Even if the result is still red, it shows that the group is slowly recovering after the worst crisis in the industry. For one thing, a loss in the first quarter is not uncommon for airlines, even in normal times. These are the weakest weeks of the year for travel, with ongoing fixed costs. On the other hand, the direction is right, the red numbers are getting smaller.

That raises expectations. Analysts are assuming an adjusted operating result of up to almost 400 million euros for the year as a whole. Alex Irving from Bernstein Research expresses his confidence with a rhetorical question: “The last quarter of losses before the upswing in the summer?” The Lufthansa share rose slightly by 1.3 percent in the morning, but then turned negative.

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Management, on the other hand, is more cautious. It remains to be seen whether the figures will be in the black again this year. There is no forecast, also because of the consequences of the Ukraine war. For 2022 as a whole, the Lufthansa Group is planning an annual average capacity of around 75 percent for the passenger airlines. An improvement in the adjusted operating result compared to the previous year is forecast. A specific value is not mentioned.

“Measured by our own indicators such as bookings or average yields, we are on the way to the black,” said CFO Remco Steenbergen. But things like the price of oil are beyond management’s control. “That’s why we don’t give a forecast.”

It is clear that the significantly higher fuel bill cannot be fully offset by savings elsewhere. “That’s why ticket prices have to go up,” said Steenbergen. He assumes that average yields will approach the pre-crisis level again in the course of the year. During the pandemic, this value had fallen because weak demand had pushed prices down.

Inflation weighs on travel budgets

Although the Lufthansa management has secured a large part of the kerosene requirement forecast for this year through counter transactions (hedging), but not everything. According to Steenbergen, the price difference between “normal” oil and jet oil has increased from $20 to $50 since the beginning of the year. The war is disrupting production, said the chief financial officer. “That also affects us.” Added to this is inflation, which is higher than it has been for a long time. This reduces purchasing power, which could also have an impact on travel bookings.

>>Read about this: Unused tickets, more debt, new jets: Lufthansa is now facing these challenges

So far, according to Lufthansa, this has not been noticeable. “We are expecting more vacationers on board in summer than ever before,” said Spohr. And business trips are also on the rise. While demand here at the end of January was still 20 percent of the pre-crisis level, it rose again to 50 percent of the previous level by the end of March. “Rarely have I experienced a quarter in which the trend has turned so quickly,” said Spohr.

This is important, because while things looked good on the “fringe” of passenger flight operations, for example at the maintenance subsidiary Lufthansa Technik or in the cargo business in the first quarter, the passenger business is in the red. The operating loss of the passenger airlines was 1.1 billion euros (previous year’s quarter minus 1.4 billion euros). This reflects, among other things, the consequences of the omicron wave at the beginning of the year. There is also no relief from short-time work benefits.


In contrast, Lufthansa Technik achieved an operating result of 120 million euros, after 45 million euros in the first quarter of last year. The freight subsidiary, which has been benefiting from bottlenecks on the shipping routes and high freight rates for months, achieved an operating result of 495 million euros, an increase of almost 60 percent.

It will be interesting to see whether Lufthansa will be able to end the outflow of money from operations (cash burn) this year. In the fourth quarter of 2021, the company was able to generate operating cash flow of EUR 158 million for the first time since the beginning of the crisis. In the first quarter, the value was almost 1.5 billion euros, a significant improvement compared to the same quarter of the previous year (minus 775 million euros).

Lufthansa wants to return Swiss state aid

Due to the positive liquidity development, the company intends to end the stabilization measures in Switzerland early this year. At the end of the last quarter, the subsidiary Swiss had only used 210 million Swiss francs of the 1.5 billion Swiss francs that the state had promised.

On Thursday morning, however, there was no new information about the plan to join the Italian ITA, the successor airline to Alitalia. Lufthansa offers together with the Swiss shipping company MSC. The ITA data room has been open since this week. A group around the US airline Delta and Air France-KLM as well as the US airline investor Indigo, to which the Hungarian Wizz Air belongs, are also interested. “We look at the data,” said Spohr.

Lufthansa is given good chances. Also in the Italian government, which wants to keep a stake in ITA, this offer is said to be considered the best. Binding bids should be submitted by the end of May, and the final talks will begin in mid-June after a bidder has been decided on.

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