Why has Lufthansa’s profit position “significantly deteriorated”?

Skift Take

Despite the shaky quarterly performance, Lufthansa Group stuck to its full-year forecast and said demand remained strong, especially for its premium products.

Gordon Smith

Lufthansa Group painted a mixed picture on Tuesday when it released its latest financial results. The German company said its profitability “deteriorated significantly” in the first nine months of 2024 compared with a year earlier. This is despite record revenues and overall capacity growth.

The group reported third-quarter operating profit of 1.3 billion euros ($1.4 billion), down 9% from the same period last year.

The firm is best known for its flagship brand Lufthansa Airlines, but also includes other big names such as Austrian Airlines, Swiss, Brussels Airlines and Eurowings. It also operates large maintenance and freight transport businesses.

In a market report, the group highlighted growing competition and increasing pricing pressure on its airlines. It said rival operators increased capacity “market-wide”, particularly between April and June 2024, with Lufthansa Airlines particularly hard hit.

At the same time, the average yield (income received by each passenger) fell by 3.5% compared to the same period in 2023. The network-wide performance masks a significant drop in the Asia-Pacific region, where yields fell 14%.

The ongoing conflict in the Middle East has also hit profitability. The company has the largest presence in the region among the three largest airline groups in Europe. Its regular schedule includes flights to countries such as Iran, Iraq and Israel. As a result, the service cancellations impacted profits by between €60 million and €100 million ($65 million to $108 million).

Strike at Lufthansa

In addition to external factors, the company faced problems closer to home. The start of the year was marred by disruptive strikes throughout the group. Lufthansa also had to endure major work stoppages at key airports and other partners. In estimating the disruption, the company said the labor disputes had cost it about 450 million euros ($486 million).

Due to what the company called “irregularities in flight operations,” the group was forced to pay huge sums to affected travelers. Direct compensation payments for flight delays and cancellations, including under the European Union’s EU261 scheme, increased by 118% year-on-year to €332 million ($359 million). Costs of helping passengers due to strikes and related disruptions rose by a fifth to 221 million euros ($239 million).

Delays in the delivery of new long-haul aircraft further weakened the results. The problem is particularly acute at Lufthansa Airlines, which is using older-generation aircraft such as the Airbus A340 in anticipation of more fuel-efficient aircraft. The carrier relaunched its sixth A380 superjumbo in July, with two more aircraft currently due to be reintroduced into service.

The airline will be one of the first customers of the new Boeing 777X aircraft. Earlier this month, Boeing CEO Kelly Ortberg said first deliveries were not expected until 2026. The original project schedule called for the 777X to enter passenger service in 2021.

“Lufthansa problem” at Lufthansa

Group executives once again cited disappointing results from core brand Lufthansa Airlines as a particular challenge. To combat what Airline Weekly senior analyst Jay Shabat called “Lufthansa’s Lufthansa problem,” management recently launched a restructuring plan aimed at improving the German flag carrier’s results.

The goal is to increase efficiency, reduce complexity and improve quality within the airline. The strategy was officially launched in the third quarter and includes moving more short-haul flights to lower-cost subsidiaries.

Further savings are expected “through network optimization, increased flexibility and automation.” The changes include a reduction in the airline’s flights to and from China. Lufthansa’s last scheduled flight from Frankfurt to Beijing took place on October 26, leaving Munich as the only direct route to the Chinese capital.

If all goes according to plan, Lufthansa’s problem child status should be a thing of the past by the end of 2026, with the measures expected to lift profits by 1.5 billion euros ($1.6 billion).

Reasons to be cheerful?

Despite the lackluster results, Lufthansa executives have reason to be cheerful. The group carried more than 40 million passengers in the third quarter, up 6% year-on-year. All of its passenger airlines were profitable during this period, although one is traditionally the strongest among European carriers.

Meanwhile, “load factor” (the number of available seats occupied on an average flight) rose slightly to 87% in the third quarter, with August being the standout month at 88%. This was the most successful calendar month in the history of the Lufthansa Group.

Carsten Spohr, group chief executive, said global demand “remains unchanged” and bookings for the current October-December quarter are “at a high level” compared with 2023, especially for premium travel.

Lufthansa is the first of three European aviation “supergroups” to report third-quarter results. Air France-KLM is due to publish its results on November 8, and IAG on November 9.