Lufthansa Group generates positive cash inflows again in the second quarter

Lufthansa Group issued this financial statement for the second quarter:

In the second quarter, the Lufthansa Group benefited from a significant market recovery with increasing passenger and booking numbers. Relaxation of travel restrictions in international air traffic and a great pent-up demand among passengers drove both demand and activity. In June alone, the number of bookings was more than twice as high as at the beginning of the quarter. As planned, the capacity offered at the end of June was 40 percent of the pre-crisis level.

Carsten Spohr, CEO of Deutsche Lufthansa AG, says:

“All Lufthansa employees worldwide have made great efforts to significantly lower costs in all areas. As a result, we have been able to stop the outflow of funds in the current phase of reviving our business and generate a positive cash flow for the first time since the beginning of the pandemic. The fact that more than 30,000 colleagues have left us in the process so far hurts us all, but is unavoidable to sustainably save the more than 100,000 remaining jobs. This unique crisis is also a unique opportunity for us to accelerate the transformation of Lufthansa in order to consolidate our global leadership role.”

Quarterly loss limited – return to positive free cash flow

Thanks to the positive development of the airlines, record results at Lufthansa Cargo and the continued recovery of Lufthansa Technik and the LSG Group, operating losses in the second quarter of 2021 declined significantly by 43 percent to -952 million euros compared to the first quarter of 2021.

Adjusted free cash flow in the second quarter was positive at 340 million euros, mainly due to strong bookings. Operating cash flow was positive at 784 million euros due to positive working capital effects related to strong bookings in the second quarter. Excluding these effects, the cash drain averaged 200 million euros per month.

Reduce costs and volunteer programs

The Group is making faster progress than previously planned towards its goal of reducing more than 3.5 billion euros in costs by 2024. Measures have already been implemented for more than half of the cost reductions. Originally, this level should only be achieved by the end of 2021. The voluntary programs offered in Germany and the planned job cuts at SWISS contribute to the sustainable cost reduction. The Group expects around 1,500 ground staff and just under 400 cockpit employees in Germany alone to take advantage of the current offers to leave the company. In Switzerland, 2,000 full-time jobs will be cut by the end of the year, including some 500 forced dismissals.

At the end of the first half year, the number of employees was 108,000. This means that around 30,000 employees have left the Group since the start of the crisis. Including the above-mentioned programs, over 1.1 billion euros of the targeted personnel savings of 1.8 billion euros have therefore already been realized or contractually agreed.

Sales and earnings performance

Group sales in the second quarter amounted to 3.2 billion euros, 70 percent higher than in the second quarter of the prior year (prior year: 1.9 billion euros). The operating loss based on Adjusted EBIT decreased to -952 million euros (prior year: -1.7 billion euros). Net income in the second quarter was -756 million euros (prior year: -1.5 billion euros).

Group sales in the first half of the financial year amounted to 5.8 billion euros (previous year: 8.3 billion euros). At -2.1 billion euros, the operating loss on the basis of Adjusted EBIT was lower in the first half of the year than in the previous year (previous year: -2.9 billion euros). Net income for the first half of the year was -1.8 billion euros (previous year: – 3.6 billion euros).

Traffic development in the second quarter

The capacity offered, measured in passenger kilometers, was 29 percent of the pre-crisis level of 2019 in the second quarter of 2021. In total, the airlines of the Lufthansa Group carried 7 million passengers in the past three months. This corresponded to 18 percent of the pre-crisis level compared to the second quarter of 2019. The seat load factor was 51 percent, 32 percentage points lower than in the second quarter of 2019. The development improved steadily over the course of the quarter. In June, offered capacity was already at 34 percent compared to the same month in 2019, and around 40 percent at the end of the month. The load factor was 58% in June, positively influenced by the pick-up in demand on short- and medium-haul routes in Europe. The number of destinations served is currently at 84% of the pre-crisis level. By September, nearly all destinations will be offered again.

Group airlines benefit from rising demand

The Group’s airlines reduced their losses thanks to recovering demand and successful restructuring efforts. Adjusted EBIT at the Network Airlines was -1.2 billion euros (prior year: -1.5 billion euros) in the second quarter. In the first half of the year, the Network Airlines recorded an Adjusted EBIT of -2.5 billion euros (prior year: -2.4 billion euros). Eurowings reduced its operating loss on an Adjusted EBIT basis to -108 million euros in the second quarter (prior year: -183 million euros) and to -252 million euros in the first half year (prior year: -358 million euros).

Lufthansa Cargo continues on record course

In the freight business, Lufthansa Cargo continues to benefit from the scarce cargo capacity in the bellies of passenger aircraft and the continued high demand for air freight. Adjusted EBIT in the logistics segment rose to 326 million euros in the second quarter (previous year: 299 million euros). For the first half of the year, Lufthansa Cargo recorded an Adjusted EBIT of 640 million euros (previous year: 277 million euros), the highest ever result in this period in the history of Lufthansa Cargo. Continued structural capacity constraints in the global freight business are expected to support the revenue and earnings development of Lufthansa Cargo in the coming years as well.

Lufthansa Technik continued its earnings recovery and improved its Adjusted EBIT in Q2 to positive 86 million euros (previous year: -126 million euros). For the first half of the year, Lufthansa Technik reported an Adjusted EBIT of 102 million euros (previous year: – 122 million euros) and benefits mainly from the increasing demand of non-European airlines, whose home markets are recovering faster than the European market.

Liquidity and equity development

At the end of the second quarter, the Lufthansa Group had available liquidity of 11.1 billion euros. This includes unused funds from the government’s stabilization measures and loans of around 3.9 billion euros. The proceeds of a bond issue in July amounting to 1 billion euros have not yet been taken into account.

At 8.9 billion euros, net debt was 1.0 billion euros lower than at the end of 2020 (December 31, 2020: 9.9 billion euros). This is mainly due to the drawing of part of the Silent Participation I of the Economic Stabilization Fund, which is accounted for as equity. Excluding the drawing, net debt at 10.4 billion euros was around 500 million euros higher at the end of 2020. In addition, supported by positive valuation effects on pension liabilities of 1.9 billion euros, the equity ratio increased by 4.2 percentage points to 7.7 percent compared to the end of 2020 (December 31, 2020: 3.5 percent).

Remco Steenbergen, CFO of Deutsche Lufthansa AG, says:

“In our financial management, our focus remains on strengthening our balance sheet. The second quarter was another step in the right direction. However, there is no way around making the Lufthansa Group profitable again as quickly as possible and implementing further cost reductions.”

In addition to the restructuring measures, the repayment of state aid and asset divestitures are important components of the strategy for strengthening the balance sheet of the Lufthansa Group. As the recently issued bonds have once again demonstrated the good access the Group has to various forms of financing on the capital markets, preparations for a capital increase are continuing.

Outlook

The development of the Lufthansa Group for the full year 2021 remains dependent on the pandemic situation, which has a significant direct impact on business development. Here, travel restrictions in particular have a decisive influence on customer demand.

The desire for travel is unbroken among people. Lufthansa therefore expects a positive development in demand for European tourism and an increasing recovery in business travel in the second half of the year. The Group’s airlines have further expanded their range of long-haul flights to include tourist destinations. The company expects an increasing opening of the markets in the second half of the year. Air travel to North America should be possible again from late summer and gradually towards Asia towards the end of the year.

Based on this expectation, the Lufthansa Group continues to assume that the Group airlines’ capacity, measured in seat kilometers offered, will be around 40 percent of the pre-crisis level in 2019 in 2021. A further increase in capacity to around 50% of the pre-crisis level and an increase in passenger numbers is expected for the third quarter. The Group thus expects to be able to stop the operating cash outflow in the third quarter and to generate positive EBITDA.

In 2021 as a whole, the Lufthansa Group continues to expect an increase in Group sales and a reduction in operating loss as measured by Adjusted EBIT.

Lufthansa Group   January – June April – June
2021 2020 Δ 2021 2020 Δ
Total revenue EUR million 5,771 8,335 -31% 3,211 1,894 +70%
of which traffic revenue EUR million 3,637 5,641 -36% 2,095 1,102 +90%
EBIT EUR million -2,114 ‐3,468 +39% -979 ‐1,846 +47%
Adjusted EBIT1 EUR million -2,095 ‐2,899 +28% -952 ‐1,679 +43%
Net profit/loss EUR million -1,805 ‐3,617 +50% -756 ‐1,493 +49%
Earnings per share EUR -3.02 ‐7.56 +60% -1.26 ‐3.12 +60%
             
Total Assets EUR million 40,838 39,887 +2%      
Operating cash flow 18 363 -95% 784 -1,004  
Gross Investments EUR million 612 897 -32% 459 127 +261%
Adjusted Free Cashflow  EUR million -607 -510 -19% 340 -1,130
               
Net Debt EUR million 8,930 7,314 +22%      
 
Adjusted EBIT-Margin in % -36.3 -34.8 -1.5pts. -29.6 -88.6 +59.0pts.
               
Employees as of June 30   108,072 129,356 -16%  

1 Adjusted EBIT is not a measure under IFRS. Information on the calculation of the Adjusted EBIT is available in the Annual Report 2020 of Deutsche Lufthansa AG.