Tourexpi
Carsten
Spohr, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG:
“Flying
has lost none of its fascination – global demand for air travel remains strong.
As a result, we exceeded the 10 billion euros turnover mark for the first time
in the second quarter. However, due to the increase in available seat capacity,
the normalization of air fares and average yields continued in all markets
worldwide in the first half of the year. In view of the simultaneous rise in
costs, profit expectations had to be adjusted across the industry – and also
for us.
Our
most important airline, Lufthansa, was particularly affected in the first half
of the year. This is because, in addition to the effects of market
developments, there were special effects such as the high strike costs, further
delays in aircraft deliveries and the resulting inefficiencies, as well as
structural problems of the airline. We therefore want to accelerate the overall
modernization of Lufthansa Airlines with a turnaround program in order to make
it the Group's flagship again.
It
is particularly pleasing that in the current challenging environment all the
other passenger airlines in the Group, as well as Lufthansa Cargo, remain on
course in line with market developments. Lufthansa Technik even posted another
record result in the first half of the year.
Strategically,
we have made decisive progress with four relevant projects: the introduction of
our new intercontinental product 'Allegris', the launch of Lufthansa City
Airlines, today's sale of AirPlus and the approval of our stake in ITA Airways
by the EU Commission. These optimizations of our business model will help us to
strengthen our position as number one in Europe."
Results
The
Lufthansa Group increased its second-quarter revenues by seven percent to 10
billion euros in 2024 (prior-year period: 9.4 billion euros). The Group
recorded an operating profit or Adjusted EBIT of 686 million euros (prior-year
period: 1.1 billion euros). The Group net result amounted to 469 million euros
(prior-year period: 881 million euros). The prime drivers here were the
11-percent expansion of the flight program in the passenger business and the
strong performance in the MRO segment, whose second-quarter revenues were 16
percent up on the prior-year period.
In
addition to the increasing normalization of ticket prices and an associated
market-related decline in yields in all traffic regions, particularly in the
second quarter, the strikes at various Lufthansa Group companies and external
system partners also impacted earnings for the period by more than 100 million
euros. In addition, operating expenses increased by 10 percent due to the
expansion of passenger flight operations, but also to inflation-related cost
increases.
Passenger
numbers and traffic development
Demand
for air travel continued to rise in the second quarter of the current year.
More than 60 million passengers flew with the airlines of the Lufthansa Group
in the first six months of 2024, a 10-percent increase on the same period last
year. In the second quarter of 2024 alone, the airlines welcomed around 36
million passengers on board (compared to 33.3 million in the second quarter of
2023).
Total
second-quarter capacity for the airlines of the Lufthansa Group was 11 percent
up on the prior-year period. Groupwide second-quarter capacity was at 91
percent of the level offered in the pre-crisis year of 2019. The Group
airlines’ seat load factor remained high at around 82 percent – only slightly
below its prior-year level, despite the higher capacity.
Owing
to the market-wide increases in capacity and the resulting price normalization,
second-quarter unit revenues (RASK) for the Group’s passenger airlines were 5.3
percent down on the same period in 2023 on a currency-adjusted basis. In
addition to the slight decline in seat load factors, falling average prices,
which however still remain significantly above pre-crisis levels, were the main
reasons for this. The decline can be observed in all traffic regions and was
particularly pronounced in Asia. Unit costs (CASK, excluding fuel and emissions
expenses) remained at their prior-year level despite the strike costs and
generally high cost inflation in the second-quarter period.
Total
second-quarter revenue for the passenger airlines increased by 4.5 percent to 8
billion euros (prior-year period: 7.7 billion euros). The airlines reported an
Adjusted EBIT of 581 million euros (prior-year period: 965 million euros). For
the first six months of 2024, the Group's passenger airlines generated total
revenue of 13.6 billion euros, some five percent more than in 2023. First-half
Adjusted EBIT declined to -337 million euros compared to the previous year (H1
2023: 453 million euros).
Lufthansa
Airlines launches comprehensive turnaround program
Lufthansa
Airlines is particularly confronted with challenges resulting from the negative
market development in the key Asia-Pacific traffic region, but also faces
inefficiencies in its Lufthansa and CityLine flight operations. The significant
delays in aircraft deliveries are 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 labor agreements for cockpit, cabin and ground staff
also had a negative impact on earnings.
As
a result, the second-quarter Adjusted EBIT of 213 million euros is some 300
million euros below its 2023 level (prior-year period: 515 million euros).
Overall, Lufthansa Airlines recorded a first-half loss of -427 million euros
(prior-year period: profit of 149 million euros).
Achieving
a breakeven full-year result is becoming increasingly challenging for Lufthansa
Airlines. In addition to short-term measures to safeguard earnings, the airline
has launched a comprehensive turnaround program to increase efficiency, reduce
complexity and improve quality, and thereby make the core brand fit for the
future.
The
program 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 digitalization of ground services.
·
Optimizing the network in line with
the stronger seasonalization of demand.
·
Increasing productivity, for example
by further developing crew planning systems.
·
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.
·
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.
Lufthansa
Technik continues at record level; Lufthansa Cargo at prior-year level
The
continuing high demand for air travel is leading to further growth in demand
for maintenance, repair and overhaul services. Second-quarter revenue at
Lufthansa Technik increased by 18 percent to 1.9 billion euros (prior-year
period: 1.6 billion euros). The positive trend was driven in particular by the
Aircraft Component and Engine Services business segments.
As
part of its 'Ambition 2030' program, Lufthansa Technik is planning extensive
investments in expanding its core business and extending its locations in
Europe, the Americas and Asia. To take one example, an additional site should
be established for the repair of engines and aircraft components in Portugal or
another location in Southwest Europe, to expand Lufthansa Technik’s own
production capacities and recruit additional specialist personnel.
In
the air cargo business, capacity in the first half of 2024 was 10 percent up on
the prior-year period, owing primarily to the expansion of the passenger
business and the associated increase in cargo hold capacities. The high demand
for e-commerce shipments and capacity bottlenecks in maritime traffic led to an
increase in demand at Lufthansa Cargo and thus to a higher cargo load factor.
Lufthansa Cargo achieved an Adjusted EBIT of 36 million euros for the
second-quarter period, broadly in line with its prior-year level, and expects a
good second half-year.
Michael
Niggemann, Chief Financial Officer of Deutsche Lufthansa AG:
“Our
revenue rose to over 10 billion euros in the second-quarter period. This was
due to a significant increase in capacity at our airlines. This growth was
accompanied, however, by a market-related decline in ticket prices. In
addition, our higher production levels and cost inflation led to an increase in
our operating costs. So despite achieving an operating result of 686 million
euros, we earned significantly less in April to June 2024 than we had in the
same period last year. In addition to market developments and structural
challenges, our largest airline Lufthansa was also affected by special effects.
Strike effects also had a negative impact in the second-quarter period.
Furthermore, delays in aircraft deliveries in particular led to inefficiencies and
additional costs. 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."
Balance
sheet strengthened, debt reduced
With
the seasonally high level of incoming bookings, the Lufthansa Group's 2024
first-half operating cash flow amounted to around 2.8 billion euros (prior-year
period: 3.1 billion euros), despite the negative operating result. Net
investments were around 100 million euros below their prior-year level at 1.7
billion euros. Overall, the Group thus achieved an Adjusted free cash flow of
878 million euros (prior-year period: 1.1 billion euros).
Driven
by the seasonally positive adjusted free cash flow and the postponement of some
investments, the Group was able to further strengthen its balance sheet in the
first half of 2024. Net debt decreased to 8.1 billion euros compared to the end
of 2023 (December 31, 2023: 8.4 billion euros). Net pension obligations fell by
200 million euros to 2.5 billion euros, following an increase in the valuation
interest rate. The Group's available liquidity increased by 200 million euros
to 10.6 billion euros compared to the start of the year and thereby remains
above the target minimum range of 8 to 10 billion euros.
Strategic
development makes progress
The
Lufthansa Group has made important progress in implementing its long-term
strategy.
The
new ‘Lufthansa Allegris’ long-haul cabin was introduced at the beginning of
May, marking an important step in improving the premium product offer for
Lufthansa customers. This was followed in June by the launch of Lufthansa City
Airlines, which will strengthen the Lufthansa long-haul network at the Munich
and Frankfurt hubs by providing competitive feeder and defeeder flights.
The
EU Commission's competition authority approved the planned acquisition of ITA
Airways at the beginning of July 2024.
Financial
outlook
Global
demand for air travel remains very robust, especially among private travelers.
The airlines of the Lufthansa Group expect another good summer in travel volume
terms. Overall, bookings up to the end of October are more than 10 percent up
on last 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. 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 percent of the pre-crisis level. The company assumes that
yields in this period will be a low single-digit-percentage down on their 2023
levels. Unit costs are expected to rise to a similar magnitude. Overall, the
Lufthansa Group expects its third-quarter Adjusted EBIT to fall short of its
2023 level (prior-year period: 1.5 billion euros) owing to the challenges at
Lufthansa Airlines.
The
Group has adjusted its annual outlook accordingly, and now expects to reach an
Adjusted EBIT of 1.4 to 1.8 billion eurosfor the 2024 financial year. This
outlook is largely dependent on the earnings performance at Lufthansa Airlines
and the traditionally important fourth quarter at Lufthansa Cargo.
In
line with the adjustment to the annual earnings forecast, the full-year
expectation for Adjusted Free cash flow is now well below 1 billion euros,
subject to uncertainties regarding the investment volume in the second half of
the year.
Further
information
Further
information on the results of individual business areas will be published in
the report on the second quarter of 2024. This will be published at the same
time as this press release on July 31 at 7:00 a.m. CEST at www.lufthansagroup.com/investor-relations.
The
traffic figures for the second quarter of 2024 will also be published at 7:00
a.m. CEST at https://investor-relations.lufthansagroup.com/en/publications/traffic-figures.html.
Image
Credit: © Lufthansa Group
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