Strikes weigh on Lufthansa Group’s earnings in the first quarter

image credit: Lufthansa Group

Lufthansa 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).

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.

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 travellers.

“We are now devoting all our energy to further expanding our premium customer offers and ensuring punctual and reliable flight operations.”

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.

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”.