Frankfurt Will the crisis become the new normal for Lufthansa? The management of Europe’s largest airline group seems to assume so. The consequences of the war in Ukraine and the looming threat of recession are being closely monitored, but that shouldn’t dampen confidence. For the year 2022, the team around CEO Carsten Spohr expects adjusted earnings before interest and taxes (EBIT) of more than 500 million euros. It would be the first annual gain since the pandemic began.
“This is a strong result after a half-year that was challenging for our passengers but also for our employees,” Spohr said in a company statement on Thursday morning. “In addition to the achieved return to profitability, top products for our customers and prospects for our employees now have the highest priority again.” The forecast is supported by good figures from the past quarter. The news was received positively on the stock exchange. The Lufthansa share gained a good one percent early in the morning.
Not only the earnings forecast underpins the optimism. Lufthansa intends to hire 5,000 new employees in the rest of the current year and in the coming year. Above all, staff for cockpits and cabins of Eurowings and Eurowings Discover as well as ground services at the airports are being sought. The maintenance subsidiary Lufthansa Technik and the caterer LSG are also to increase their human resources.
This is the company’s response to the major staff shortages that are severely hampering flight operations. After Easter, the demand for flights increased more and faster than the industry expected. Because the personnel capacities could not keep up with this growth due to the current corona wave, Lufthansa alone had to withdraw around 7,000 flights from the program this summer. The quality on board has also suffered, the consulting company Skytrax recently took away Lufthansa’s fifth star, an award for the highest standards.
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Due to the operational problems, Lufthansa will increase capacity in the main travel season until September a little less than planned. Instead of 85 percent of the pre-crisis level, it should now be 80 percent. In the second quarter, 29 million passengers used the airlines of the Lufthansa Group. In the same period last year, it was only seven million.
Management’s confidence surprised
Management’s confidence comes as a surprise given the outlook for the coming months. In addition to the operational problems, geopolitical crises and their consequences as well as the increasing risk of recession are burdening the global economy. Added to this are higher fuel prices. According to the Federal Association of the German Aviation Industry (BDL), aviation fuel is currently about twice as expensive as before the pandemic. In the past, this has always been a toxic mixture for airlines.
But the Lufthansa top refers to several positive developments. On the one hand, the demand for flight tickets remains high. Bookings for the months of August to December are currently around 83 percent of the pre-crisis level. On the other hand, customers are increasingly booking premium seats. According to Lufthansa, the occupancy of the premium classes in the second quarter was 80 percent and thus above the value of 2019. Private travelers are apparently also treating themselves to more comfort.
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Overall, all tickets will be more expensive. The so-called average revenues rose by 24 percent in the second quarter. They were even around ten percent higher than in 2019.
The latest quarterly figures are also providing momentum. The flight chaos between April and June cost 158 million euros in compensation payments. The group’s passenger airlines continued to make losses, with the exception of the Swiss subsidiary Swiss. But because air freight is booming and Lufthansa Technik once again made a positive contribution to earnings, the group was able to achieve an adjusted operating result of 393 million euros in the second quarter, after an operating loss of 827 million euros a year earlier.
At the same time, the group management feels that it is adequately prepared for difficult days in terms of the balance sheet. From December 2021 to the end of June this year, net debt fell from nine billion to 6.4 billion euros. At the end of June, the company had liquidity of 11.4 billion euros. The equity ratio is also at a better level again at 17 percent. At the end of last year, it was still a good ten percent.
Lufthansa boss Carsten Spohr promises his customers to pay more attention to quality again. It has suffered greatly from the pandemic and the lack of staff.
(Photo: Bloomberg)
All of this is enough for the Lufthansa leadership to provide investors with a more concrete forecast for the first time – despite “unchanged great uncertainty, among other things with regard to global economic and geopolitical developments and the progress of the corona pandemic”. Nevertheless, there are warning voices. “Winter demand remains very uncertain,” wrote Alex Irving of Bernstein Research in an industry analysis this week.
Among other things, it is unclear how consumers will deal with the fact that high inflation is eating away at their incomes. At the same time, personnel costs will increase. Lufthansa is currently negotiating with several unions, some of which are demanding up to ten percent more wages. The management hopes to reach an agreement with Verdi on Thursday. Irving von Bernstein warns that Lufthansa faces greater challenges than other airlines when it comes to personnel.
And the tight staff capacities will continue to impede flight operations. Schiphol Airport, for example, announced this week that it intends to severely limit the number of departing passengers in September and October.
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