Tag Archives: Lufthansa Group

Strikes weigh on Lufthansa Group’s earnings in the first quarter – outlook for summer remains positive

Group revenue increases by 5 percent to 7.4 billion euros in the first quarter
Number of passengers rises to 24 million in the first quarter
Adjusted EBIT in the first quarter at -849 million euros
Strikes impact earnings by around 350 million euros in the first quarter
Unit costs excluding strike impact below previous year
Summer with record number of holiday destinations and 16 percent more bookings than last year
Adjusted EBIT of around 2.2 billion euros expected for the full year of 2024

Carsten Spohr, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG:

“We are now leaving the first quarter behind us, which was mainly impacted by strikes, and are at a turning point. We have reached long-term wage agreements for the majority of our employees. This means planning certainty and clarity for the coming years. We are still seeing strong demand, which is even significantly higher than last year for the summer. We are therefore continuing to expand our offering and are growing on long-haul routes in particular. Our planes remain well filled throughout. One thing is already clear: it will be another very strong summer. I am particularly pleased that we are continuing to see a positive trend not only among leisure but also business travelers. We are now devoting all our energy to further expanding our premium customer offers and ensuring punctual and reliable flight operations.”

Results for the first quarter of 2024

The Group increased its revenue by five percent year-on-year to 7.4 billion euros in the first quarter of 2024 (previous year: 7.0 billion euros). The Lufthansa Group recorded an operating loss (Adjusted EBIT) of 849 million euros (previous year: -273 million euros). Strikes, both by various employee groups within the Group and by employees of our system partners, had a negative impact of around 350 million euros on earnings. In addition, Lufthansa Cargo’s result declined now that the logistics industry has returned to normal after the pandemic-related exceptional economic situation. The Adjusted EBIT margin fell to -11.5 percent (previous year: -3.9 percent). The Group result fell to -734 million euros (previous year: -467 million euros).

Passenger numbers and traffic development

Demand for air travel continued to rise in the first quarter of the current year. A total of 24 million passengers flew with the airlines of the Lufthansa Group, an increase of 12 percent compared to the previous year (Q1 2023: 22 million). The Group airlines expanded their seat capacity by 12 percent year-on-year despite the strike-related flight cancellations. Compared to the pre-Crisis year 2019, this was 84 percent, around 5 percentage points lower than originally planned. Despite the significant increase in capacity, the load factor remained consistently high due to high demand. The passenger load factor amounted to 79.7 percent and was thus at the previous year’s level.

Strikes have a significant negative impact on Passenger Airlines’ earnings

The Lufthansa Group Passenger Airlines’ revenue rose by seven percent to
5.6 billion euros in the first quarter (previous year: 5.2 billion euros). They recorded an Adjusted EBIT of -918 million euros (previous year: -512 million euros). Strikes had an impact of around 300 million euros on earnings in this segment.

Yields fell by 2.5 percent compared to the previous year, partly due to the strike-related uncertainty on the customer side and the corresponding lack of high-priced last-minute bookings. Unit revenues (RASK) were 6.3 percent down on the previous year, also influenced by lower cargo revenues and significantly higher compensation payments to passengers due to the strike.

Unit costs (CASK) rose by 2.9 percent compared to the same quarter of the previous year due to the strike. Adjusted for the strike effects, however, they were 1.8 percent below the previous year despite higher expenses for fees, MRO and personnel.

Due to the high losses in the core brand Lufthansa in the first quarter (Adjusted EBIT -640 million euros), Lufthansa Airlines has initiated measures to strengthen the result this year in the short term. Among other steps, it is planned to reduce operating costs, stop new projects and assess the need for additional staff in administrative areas.

Lufthansa Technik benefits from more air traffic

Demand for maintenance, repair and overhaul services as well as other Lufthansa Technik products increased in the first quarter of 2024 due to the positive trend in air travel. Revenue increased accordingly by 15 percent year-on-year to 1.8 billion euros (previous year: 1.5 billion euros). Adjusted EBIT fell by 14 percent to 116 million euros (previous year: 135 million euros), impacted by strike-related work stoppages. Excluding this effect, which had a negative impact on earnings of around 25 million euros, earnings were up on the previous year.

In the logistics business, capacity rose by seven percent due to the expansion of air traffic and revenue tonne-kilometres also increased by ten percent. Yields were around 25 percent lower than in the same quarter of the previous year, in which the result was significantly boosted by high demand due to supply chain disruptions and the shortage of capacity as a result of the pandemic. Lufthansa Cargo thus achieved an Adjusted EBIT of -22 million euros (previous year: 151 million euros). Excluding the strike effects of 25 million euros, the quarterly result was slightly positive.

Positive Adjusted free cash flow further reduces net debt

Due to the continued high level of incoming bookings, operating cash flow amounted to around 1.3 billion euros despite the negative operating result. At 940 million euros, net investments were around ten percent below the previous year, meaning that Adjusted free cash flow amounted to 305 million euros (previous year: 482 million euros).

The Group further strengthened its balance sheet in the first quarter of 2024. Net debt decreased to 5.5 billion euros compared to the end of 2023 (December 31, 2023: 5.7 billion euros) due to the positive free cash flow. Net pension obligations fell to 2.4 billion euros due to a higher discount rate (December 31, 2023: 2.7 billion euros). At the end of March 2023, the company had liquidity totaling 10.8 billion euros (December 31, 2023: 10.5 billion euros) at its disposal. Following an upgrade by Moody’s in the first quarter, the Lufthansa Group is now the only European network airline to be consistently rated investment grade again by all four agencies in the market.

Remco Steenbergen, Chief Financial Officer of Deutsche Lufthansa AG:

“We cannot be satisfied with the operating result for the first quarter; at more than 350 million euros, the various strikes had a significant impact on our result. Nevertheless, cash flow was positive due to the continuing high demand for air travel. We were also able to further strengthen our balance sheet. In the coming months, we will work intensively to compensate for the effects of rising costs. We have taken additional measures to this end, particularly at Lufthansa Airlines, which is significantly affected by rising personnel expenses and fees. I therefore remain convinced that we will be able to achieve stable unit cost development for the year as a whole without taking the strikes in the first quarter into account.”

Bookings for summer 16 percent up on previous year

Global demand for air travel remains strong, particularly from private travelers. The company expects another very good summer of travel. Never before have so many holiday destinations been served by Lufthansa Group airlines as this year. The most popular summer destinations in 2024 are once again Spain, Portugal, Italy and Greece and, for long-haul travel, the USA, Japan and Southern Africa. This year, many holidaymakers will once again be able to afford a ticket in one of the premium classes. In addition to the very good demand in the private travel segment, the trend in the business travel segment is also positive. This applies in particular to long-haul flights. The Lufthansa Group is continuously expanding its offering here. In addition to the traditionally strong North American routes, demand from business travelers on the India and Japan routes in particular is growing this year.

Overall, bookings for the summer timetable (April to October) are 16 percent up on the previous year.

Guests can now also enjoy Lufthansa Allegris, the new travel experience on long-haul routes. Allegris will start regular scheduled service on May 1. The first Airbus A350-900 equipped with Allegris will fly from Munich to Vancouver on the Canadian West Coast. The second destination is Toronto, which will be served alternately with Vancouver on selected flights in the first few months. With further A350s delivered, the Allegris cabin will also be used on flights to Chicago and Montreal in the summer.

Financial outlook

The Lufthansa Group plans to increase available capacity in the second quarter to around 92 percent of the pre-crisis level. The increase will therefore be lower than originally planned due to further investments in operational stability and delayed aircraft deliveries. The company expects a year-on-year decline in unit revenues (RASK) in the low single-digit percentage range, partly because customers were reluctant to make short-term bookings for April and, to a lesser extent, May during the wage disputes that have now been resolved. Unit costs (CASK) are expected to increase in the low single-digit percentage range in the second quarter. Adjusted EBIT in the second quarter will therefore still be below that of the previous year. In line with the lower capacity in the first two quarters, the Lufthansa Group now expects to achieve a capacity level of around 92 percent of the pre-crisis figure for 2019 (previously: 94 percent) for the full year 2024.

In the third quarter, capacity is to be increased further to over 95 percent of the pre-crisis level. Based on incoming bookings, the Group airlines expect unit revenues (RASK) in the third quarter to be higher than in the previous year.

In the second half of the year, the Group’s operating result is expected to be higher than in the previous year. As already communicated on April 15, Adjusted EBIT for the full year is now expected to be around 2.2 billion euros (previously: stable earnings development compared to 2.7 billion euros in the previous year). For the Passenger Airlines, a decline in unit revenues (RASK) in the low single-digit percentage range and an increase in unit costs (CASK), also in the low single-digit percentage range, are expected for the full year. Excluding the effects of the strikes in the first quarter, unit costs (CASK) are expected to remain stable. Adjusted free cash flow is expected to be at least 1 billion euros (previously: at least 1.5 billion euros).

Further information

Further information on the results of individual business units will be published in the report on the first quarter of 2024. This will be published at the same time as this press release on April 30, 2024 at 07:00 CEST at www.lufthansagroup.com/investor-relations.

The traffic figures for the first quarter of 2024 will also be published at 07:00 CEST athttps://investor-relations.lufthansagroup.com/en/publications/traffic-figures.html .

		Jan – Mar 2024	Jan – Mar 2023	Change in %
Revenue and result
Total revenue	€m	7,392	7,017	5
of which traffic revenue	€m	5,903	5,708	3
Adjusted EBIT	€m	-849	-273	-211
Adjusted EBIT margin	%	-11.5	-3.9	-7.6 P.
EBIT	€m	-871	-304	-187
Net profit/loss	€m	-734	-467	-57
Earnings per share	€	-0,61	-0,39	-56
Key balance sheet and cash flow statement figures
Total assets	€m	47,358	44,904	5
Cash flow from operating activities	€m	1,311	1,581	-17
Net capital expenditures	€m	940	1,040	-10
Adjusted free cash flow	€m	305	482	-37
Employees
Employees as of 31 March	number	98,739	112,392	-12

European Commission sends Statement of Objections over proposed acquisition of a stake in ITA Airways by Lufthansa

The European Commission has informed Deutsche Lufthansa AG (‘Lufthansa‘) and the Italian Ministry of Economy and Finance (‘MEF‘) of its preliminary view that their proposed acquisition of joint control of ITA Airways (‘ITA‘) may restrict competition on certain routes in the market for passenger air transport services in and out of Italy. The Commission is concerned that customers may face increased prices or decreased quality of services after the transaction.

Lufthansa and ITA operate an extensive network of routes from their respective hubs in Austria, Belgium, Germany, Switzerland and Italy. Lufthansa has joint ventures with United Airlines and Air Canada for transatlantic routes as well as with All Nippon Airways for routes to Japan. The joint venture partners coordinate on price, capacity, scheduling, and share revenues.

The Statement of Objections

On 23 January 2024 the Commission opened an in-depth investigation to assess if Lufthansa’s acquisition of a stake in ITA may restrict competition in the provision of passenger air transport services in and out of Italy.

The Commission has conducted a wide-ranging investigation to understand the potential impact of the deal. This investigation has included, among others, analysing internal documents and detailed information provided by the parties and gathering information and views from competing airlines, airports, slot coordinators and customers.

The Commission has also considered proactive submissions from individual consumers, consumer representative organisations, airports, rival airlines and trade unions expressing their views in support of or against the transaction.

As a result of this in-depth investigation, the Commission is concerned that the transaction may:

Reduce competition on a certain number of short-haul routes connecting Italy with countries in Central Europe. On such routes, Lufthansa and ITA compete or will compete head-to-head mainly with direct, but also with indirect flights. Competition in such routes appears limited and comes primarily from low-cost carriers, such as Ryanair, who in many cases operate from more remote airports.
Reduce competition on a certain number of long-haul routes between Italy and the US, Canada and Japan. On such routes, ITA on the one hand and Lufthansa and its joint venture partners on the other hand compete head-to-head with direct or indirect flights. Competition from other airlines appears insufficient on those routes. In its assessment, the Commission treats the activities of ITA, Lufthansa and its joint venture partners as those of a single entity after the merger.
Create or strengthen ITA’s dominant position at the Milan-Linate airport, which could make it harder for rivals to provide passenger air transport services from and to Milan-Linate.

Every year, millions of passengers travel on those routes for a total annual spending of over €3 billion. The Commission’s objective is to ensure that the transaction would not lead to adverse effects for customers – consumers and businesses alike – in terms of increased prices or decreased quality of services. ITA has had a successful start to its operations. The Commission is concerned that, absent suitable remedies, the removal of ITA as an independent airline may have negative effects on competition in these already concentrated markets. The routes giving rise to potential concerns represent a small share of total short- and long-haul routes and passengers served by both parties and their joint venture partners, and the potential concerns do not affect the vast majority of routes that ITA operates.

A Statement of Objections is a formal step in an investigation, where the Commission informs the companies concerned in writing of the objections raised against them. The sending of a Statement of Objections does not prejudge the outcome of the investigation. Lufthansa and MEF now have the opportunity to reply to the Commission’s Statement of Objections, to consult the Commission’s case file and to request an oral hearing.

Lufthansa and MEF also have the possibility to put forward remedies to address the preliminary competition concerns identified by the Commission. They can decide to submit remedies at any time of the proceedings until the remedy deadline, which currently falls on 26 April 2024.

Companies and products

ITA, headquartered in Italy, is a full-service carrier with domestic and international operations in passenger and cargo air transport. ITA operates a hub-and-spoke network with its principal hubs in Rome and Milan. ITA was created by the Italian State in October 2020 and it had a successful year 2023. ITA is a member of the SkyTeam alliance.

Lufthansa, headquartered in Germany, is a global full-service carrier with domestic and international operations in passenger and cargo air transport. Lufthansa also operates a hub-and-spoke network with its principal hubs in Frankfurt, Munich, Zurich, Vienna and Brussels. Its subsidiaries include Austrian Airlines, Brussels Airlines, Eurowings, Swiss International Airlines and Air Dolomiti. Lufthansa is a member of the Star Alliance, of a transatlantic joint venture with United Airlines and Air Canada and of a joint venture for traffic between Europe and Japan with All Nippon Airways.

MEF carries out the tasks and responsibilities of the Italian government in the fields of economic policy, financial policy, budgeting, and tax policies. MEF holds shareholdings in public and strategic companies in Italy, among others in the transport sector, and it is currently the sole shareholder in ITA. The companies in which MEF has shareholdings are active worldwide.

Background

The transaction was notified to the Commission on 30 November 2023. On 8 January 2024, Lufthansa submitted commitments to address some of the Commission’s preliminary concerns. However, these commitments were insufficient, in terms of both scope and effectiveness, to clearly dismiss the Commission’s preliminary concerns. The Commission therefore did not test them with market participants.

The Commission opened an in-depth investigation on 23 January 2024 and has until 6 June 2024 to take a final decision.

The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the European Economic Area or any substantial part of it.

The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).

In addition to the current transaction, there is currently one ongoing Phase II merger investigation, namely the proposed acquisition of Air Europa by IAG.