Frankfurt Lufthansa is slowly working its way out of the red. In the first quarter, Europe’s largest airlines were 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.
“The restrictions on air traffic have largely been overcome. We are now mentally overcoming the crisis and going on the offensive again – more focused, efficient and sustainable than before the pandemic,” commented CEO Carsten Spohr on the figures in a first statement. 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. 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. “In view of the extreme changes in the price of kerosene in recent weeks, the development of fuel costs in particular cannot be precisely forecast for the year as a whole,” the statement said.
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For 2022 as a whole, the Lufthansa Group is planning an annual average capacity of around 75 percent for the passenger airlines. For the year as a whole, an improvement in the adjusted operating result compared to the previous year is forecast. A specific value is not mentioned. Because of the higher effort, CFO Remco Steenbergen confirmed the intention to increase ticket prices: “We have to pass on the rising costs to our customers.”
Inflation weighs on travel budgets
There are two main concerns about the war. On the one hand, the conflict is driving the price of oil. Although the Lufthansa management has secured a large part of the kerosene requirement forecast for this year through counter transactions (hedging), but not everything. On the other hand, inflation is higher than it has been for a long time, which reduces purchasing power, which could also have an impact on travel bookings.
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So far, according to Lufthansa, this has not been noticeable. “New bookings are increasing from week to week – for business travelers, but especially for vacation and private trips,” CEO Spohr is quoted as saying in the statement.
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.
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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