Frankfurt Lufthansa remained in the red in 2021 – but Europe’s largest airline group was able to significantly reduce the minus. The operating loss (operating earnings before interest and taxes) fell from 7.4 to 2.3 billion euros. The group loss was 2.2 billion euros, after minus 6.7 billion euros in 2020. The company announced this early Thursday morning. Sales increased last year by almost 24 percent to 16.8 billion euros.
The figures show that the worst crisis in aviation to date is far from over. At the same time, the next one is already here. The war in Ukraine could complicate further recovery of the “Hansa”. The problem: The consequences of the geopolitical conflict for aviation cannot yet be fully grasped. “Great uncertainties regarding the dramatic developments in Ukraine and the economic and geopolitical consequences of the conflict as well as remaining uncertainties regarding the course of the pandemic do not allow a detailed financial outlook at the moment,” the company said.
Planes bound for Asia have to be diverted because the important airspace over Russia is closed. This currently affects the rapidly growing and profitable cargo flights in particular. The jets have to take more fuel on board, at the expense of the payload.
The indirect consequences are even more dangerous. Experts like Alex Irving from Bernstein Research see two main potential risks: On the one hand, the war will drive up the price of oil and thus also the price of kerosene. Most recently, Brent crude oil cost over 110 US dollars per barrel (159 liters), the highest it has been for many years.
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Fuel is becoming significantly more expensive
However, the company assumes that it will be significantly less affected by this cost inflation than the competition, partly because it has hedged extensively and early on against rising fuel prices and the increase in the cost of emission certificates, according to a company statement.
On the other hand, inflation is rising rapidly. In the euro zone, it reached a new record of 5.8 percent in February. Irving von Bernstein warns that this is shrinking the budgets of customers, especially private travelers. But these are the ones that are currently causing strong demand for flight tickets.
>> Read about this: With the jumbo to Mallorca: Lufthansa reports strong increase in passenger numbers and stops job cuts
This is reflected in the Lufthansa figures. The drivers of sales last year were the low-cost platform Eurowings with a sales increase of 37 percent to 822 million euros and the freight subsidiary LH Cargo with growth of 38 percent to 3.8 billion euros. Private travel is returning to the pre-crisis level much faster than business travel. Eurowings in particular will benefit from this.
In turn, Lufthansa Cargo benefits from the fact that supply chains have become more fragile. Ships back up in front of major ports, so more cargo space is booked on the jets, even if it’s more expensive. This situation has worsened since the beginning of the war in Ukraine.
All in all, the core business of “Hansa” with the transport of passengers remained in the red despite the boost at Eurowings 2021. The network airlines recorded an operating loss of 3.5 billion euros, Eurowings posted an operating loss of 230 million euros.
The CEO of Europe’s largest airline group is concerned about the war in Ukraine.
(Photo: imago images/sepp spiegl)
On the other hand, the offshoots beyond the passenger division stand out on the earnings side. They alone secured the profit of the group. The maintenance subsidiary Lufthansa Technik was able to turn its previous year’s loss into a profit of 210 million euros. The freight offshoot increased its earnings to almost 1.5 billion euros, a whopping increase of more than 90 percent. The catering division LSG converted a three-digit loss into a small profit of 27 million euros.
Despite the group loss, the Lufthansa management was able to correct the balance sheet, which had gotten into trouble as a result of the crisis, in important areas. At the end of last year, the group had liquidity of 9.4 billion euros. Until the beginning of the crisis, management thought that only around two billion euros would be sufficient, in the future it should always be between eight and nine billion euros. This shows how much Lufthansa management wants to play it safe after experiencing the pandemic. This also applies to the equity ratio. It rose from 3.5 percent to 10.6 percent.
Despite the war in Ukraine, the Lufthansa management assumes that the operating result will improve in the following quarters and refers to the continued strong booking figures for Easter and the summer.
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