Frankfurt Anyone looking at the stocks of Europe’s airlines these days will find the astonishing:
This is a success, especially for Lufthansa. Not even two years ago, Europe’s largest airline group had to be saved from collapsing with state aid worth billions. The corona pandemic had brought air traffic to a standstill worldwide. Back then, no one on the capital market would have been willing to give “Hansa” even one cent.
With its brands Lufthansa, Swiss, Austrian Airlines and Brussels Airlines and its presence in four European countries, the Lufthansa Group was particularly hard hit by the consequences of the pandemic. Although the competitor IAG also had to apply for state support for some of its flight operations, it needed less financial aid overall. Air France-KLM is still restructuring its balance sheet and is preparing a new capital increase, according to French media reports.
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The Lufthansa share price, on the other hand, shows that investor confidence has returned. So far, management has managed to work its way out of the worst phase of the crisis surprisingly quickly. Recently, the group even paid back the state aid.
Lufthansa could benefit disproportionately from the recovery
Now the calculus of many investors is: As much as the group suffered from Corona, it could benefit just as much from the recovery.
It is also striking that the airlines in the Lufthansa Group have been more cautious than some of their competitors when it comes to expanding their offerings. It’s paying off now that the Omicron wave is rolling. Lufthansa has to reduce capacity less than others.
According to the latest data from the European air traffic control organization Eurocontrol, Lufthansa reduced the number of daily flights in the first two weeks of the new year by around nine percent compared to the same period in the pre-crisis year of 2019. For comparison: With Ryanair the minus is a whopping 43 percent, with Easyjet even 57 percent and with Air France still 19 percent.
But success is known to be fleeting. “Lufthansa is one of the airlines with the best performance so far this year,” analyzes Alex Irving from Bernstein Research in a recent study. Nevertheless, he downgrades the shares of the German group from “Outperform” to “Marketperform”.
For the time being, the industry expert does not believe that Lufthansa can continue to outperform its rivals. In addition to the latent risk posed by Omikron, Irving points to the group’s still open construction sites – such as unresolved wage disputes and a possible entry into the Italian company ITA.
In fact, the conflict with the pilots of the Lufthansa core brand is weighing on future prospects. A few weeks ago, the management terminated an agreement with the Vereinigung Cockpit (VC) pilots’ representation. The group had promised to operate at least 325 aircraft under the Lufthansa brand. But the market no longer gives that, according to Lufthansa.
Now the employment commitments for the 5,000 pilots at the Lufthansa brand are in danger, and the unrest there is correspondingly great. For its part, VC terminated the collective wage agreement on June 30, 2022 and would therefore be able to go on strike from this date.
CEO Carsten Spohr wants to save arithmetically 1000 full-time jobs at Lufthansa. This can also be done through part-time models with a corresponding waiver of salary. The VC, in turn, refers to the major temporary losses suffered by cockpit staff during the pandemic, but refuses to make them permanent. If no agreement is reached, labor disputes threaten in the middle of summer business, on which all airlines are pinning great hopes.
A second construction site is the growth strategy of the Lufthansa Group. CEO Spohr continues to see the company as a driver of consolidation in European aviation. Current rumors about ITA, the successor company to the permanently insolvent Italian Alitalia, could be a first sign that things are slowly picking up speed. A few days ago, the Italian media reported that Lufthansa had offered ITA a stake of up to 40 percent in the airline.
Speculations about entry into the ITA unsettle investors
Whether it will actually come to such a “deal” is open. The Lufthansa leadership has had a strong interest in the Italian market for years. The ITA boss also recently described Lufthansa as an ideal partner. But it wouldn’t be the first time that the Italian media reported that negotiations were at an advanced stage, but then nothing happened.
One thing is certain: Investors are looking at an entry into ITA with a certain uneasiness. On the one hand, the Italian market is interesting. Lufthansa is already present here with its subsidiary Air Dolomiti. On the other hand, the Italian state should continue to have a say in ITA. The trade unions in Italy also traditionally have a strong position. In addition, the competition is fierce, the low-cost providers Ryanair and Easyjet have spread in Italy in recent years.
Lufthansa does not want to comment on the speculation and refers to earlier statements by CEO Spohr, who has repeatedly expressed interest in commercial cooperation with ITA. Managers also point out that Lufthansa will under no circumstances make a risky investment in Italy – whatever that means in the end.
More: 18,000 flights without passengers? This is behind the dispute over Lufthansa’s empty flights