Lufthansa Announce Turnaround Plan After Profit Declines
Confronted with challenges resulting from the negative market development in the key Asia-Pacific traffic region and also facing inefficiencies in its Lufthansa and CityLine flight operations, German national Carrier Lufthansa Airlines has announce launching of a comprehensive turnaround programme.
A major step initiated as part of the plan is reducing to six long-haul aircraft types by decommissioning the Airbus A340-300, A340-600 and A330-200 and the Boeing 747-400 sub-fleets by 2028.
The program also includes increasing revenue by consistently delivering on the premium promise, for example, through the introduction of Allegris and further investments in product and service improvements, improving the customer experience by focusing on smooth and efficient flight operations, for example through the further digitalisation of ground services.
The airline also plans to optimise the network in line with the stronger seasonalisation of demand and increase productivity by further developing crew planning systems.
Strategically expanding the flight operations of Discover Airlines and Lufthansa City Airlines in order to further develop the product offer at the Frankfurt and Munich locations at competitive costs.
Delayed Aircraft Deliveries
Significant delays in aircraft deliveries were also causing upheavals in areas such as fleet management and also through the additional maintenance costs for the older aircraft still in use. The disproportionately high increase in location cost in Germany and new collective labour agreements for cockpit, cabin and ground staff also had a negative impact on earnings.
As a result, the second-quarter Adjusted EBIT of $230.26 million is some $324.31 million below its 2023 level ($556.74 million). Overall, Lufthansa Airlines recorded a first-half loss of $461.61 million ($161.08 million) and achieving a breakeven full-year result is becoming increasingly challenging for Lufthansa Airlines.
Michael Niggemann, Chief Financial Officer of Deutsche Lufthansa, said that the revenue rose to over $10.81 billion in the second-quarter period. This was due to a significant increase in capacity of the airlines. This growth was accompanied, however, by a market-related decline in ticket prices.
In addition, higher production levels and cost inflation led to an increase in the airlines’ operating costs. So despite achieving an operating result of $741.6 million, the airlines earned significantly less in April to June 2024 compared with the same period last year.
“Nevertheless, we expect to report a clearly positive annual result for the Lufthansa Group, not least in view of the measures we have introduced to safeguard our earnings. Excluding the strike effects, we are convinced that we will achieve stable unit cost development for the year as a whole,” Niggemann added.
Financial Outlook
Global demand for air travel remains very robust, especially among private travellers and Lufthansa Group expect another good summer in travel volume terms. Overall, bookings up to the end of October were more than 10% up on last year.
The most popular summer destinations in 2024 are Spain, Portugal, Italy and Greece and, for long-haul travel, the US, Japan and South Africa. And this year, too, many vacationers choose a ticket in one of the premium classes.
Under present plans, the Lufthansa Group’s third-quarter capacity is expected to amount to around 96% of the pre-crisis level and the company assumes that yields in this period will be a low single-digit-percentage down on their 2023 levels.
Overall, the Lufthansa Group expects its third-quarter Adjusted EBIT to fall short of its 2023 level ($1.62 billion) owing to the challenges at Lufthansa Airlines.