EU Companies

Lufthansa launches savings plan to curb falling profits

In the second quarter results almost halved due to rising costs and falling tariffs.

by Mara Monti

31 July 2024

3' min read

Key points

Strategic Airways for the internationalisation of the group
Delivery difficulties and rising costs
Signs of setback for airlines
Modernisation programme to make Lufthansa the group's flagship again

3' min read

Germany's national airline Lufthansa confirms the difficulties that European carriers are experiencing amidst falling fares, rising costs, and problems with aircraft delivery, and is taking corrective action by launching a savings programme that includes the divestment of 50 old long-haul aircraft over the next few years.

Ita Airways strategic for the internationalisation of the group

Among the projects achieved during the quarter was the European Commission's go-ahead for the merger with Ita Airways, which represents a "milestone in Lufthansa's internationalisation strategy" and a market that is Italy's second largest for passengers, said Lufthansa CEO and chairman Carsten Spohr during a call with analysts, adding that the deal is expected to close by the end of the year. On the remedies requested by the European antitrust for Lufthansa's deal on Ita Airways "we are in constructive dialogue" on both long-haul and short-haul flights. "I think these talks are going according to plan and according to agreement with the European Commission to find a solution in an appropriate timeframe, which must of course go back to Brussels for approval, but my optimism remains," Spohr added.

Lufthansa aims to curb profit decline

The company is aiming to contain the decline in profits after ending the second quarter with a 47% drop to EUR 469 million from EUR 881 million in the same period last year and expecting a further drop in the third quarter. Revenues in the second quarter rose by 7% to EUR10 billion from EUR9.4 billion last year, with demand remaining strong in the summer months.

Delivery difficulties and rising costs

Air fares in Europe and on long-haul routes are falling, signalling that the prolonged post-COVID travel boom is coming to an end and causing a setback for airlines struggling with higher costs and limited aircraft availability.

Overall, the German group expects third-quarter EBIT to be lower than the previous year's level of €1.5 billion, due to difficulties faced by the Lufthansa Airlines division, on which delays in aircraft deliveries and increased costs to repair old ones still in use are weighing heavily, while wages rose after a series of strikes cost the group €100 million in profits in the second quarter. The group now expects to achieve an adjusted EBIT of between EUR 1.4 billion and EUR 1.8 billion for the financial year 2024. The company has revised its year-end outlook downwards twice and on the stock exchange the share is down 25 per cent since the beginning of the year.

Signs of a setback for airlines

Last week, Air France KLM's financial results fell short of forecasts due to rising costs compounded by Ryanair's falling profits, all alarm bells ringing about the difficulties in the air transport sector.

"The growth in market capacity has intensified price pressure for passenger airlines, causing yields to fall," said CEO and Chairman Charsten Spohr in a note. "In addition, strikes in the first quarter of 2024 and inflation-related cost increases have negatively impacted the earnings of passenger airlines and Lufthansa Airlines in particular. As part of the programme to ensure efficiency and earnings, Lufthansa Airlines has announced measures in response to the difficult market environment and rising costs." In the third quarter Lufthansa expects capacity to be at 96% of pre-Cvid levels with bookings up 10% through October. For the year, capacity remains at 92% compared to 2019.

Modernisation programme to make Lufthansa the flagship of the group again

The CEO announced a decisive 'turnaround' with a programme to 'accelerate modernisation' and 'make the airline the flagship of the Group again'. In any case, Spohr points out that in this 'difficult context' it is 'positive' that 'all other passenger airlines, as well as Lufthansa Cargo, remain in line with market developments. Lufthansa Technik even recorded another record result in the first half of the year,' he added.