Air traffic Core company drags Lufthansa Group down
Major problems with the core brand are ruining the Lufthansa Group's balance sheet. Shortly before joining Ita, the company has to find a new strategy for the group's largest airline.
12.07.2024, 15:59
SDA
The Lufthansa Group has significantly cut its profit forecast for the current year. The reason for this are major problems at the core company Lufthansa, which are dragging down the entire Group.
Since the winter, the fleet with the crane has been flying miles behind its financial targets and has posted a loss of 427 million euros after six months - a good half a billion less than in the same period last year, when a profit of 149 million euros had already been posted by June 30.
While the other Group companies such as Swiss, Austrian, Eurowings, Brussels and Lufthansa Technik are largely on target, costs and revenues are diverging at the core company. While ticket sales rose almost automatically after the corona crisis was overcome, the market has now largely returned to normal, reports airline boss Jens Ritter in an internal letter.
At the same time, the competition is expanding its services much faster than the crane. The result: even with long-haul flights to Asia or across the Atlantic, the profit per passenger is getting smaller and smaller.
Tourists cannot replace business travelers
Ritter continues: "We are experiencing a "new reality": not a crisis, but a structural change." In other words: The many tourists on board do not fill the planes all year round - the business travelers are sorely missed. "With our current system, we have hardly any opportunities to compensate for such seasonal fluctuations," says Ritter.
The management has initially launched a tough savings program for the core brand. Material costs are being cut by 20 percent across the board and a general freeze on staffing has been imposed in administration. All non-essential projects are to be postponed, reduced or stopped in order to perhaps still break even by the end of the year. Reaching the break-even point is "increasingly challenging", according to the mandatory announcement to the stock exchange on Friday.
20 percent less productivity
According to "Handelsblatt", Group CEO Carsten Spohr is alarmed: "Things are not going at all as we imagine, he is reported to have said at an employee forum. Lufthansa Airlines is operating 20 percent fewer flights than before the pandemic, but has the same number of employees as in 2019, which means 20 percent less productivity.
The problems come at an inopportune time for the Group CEO. The acquisition of the Italian state airline Ita has only just been approved by the EU. For the planned completion in the fourth quarter, he needs large management capacities - in Rome and in Frankfurt. And, of course, capital that Lufthansa and Co. are supposed to generate.
Forecast capped
For the year as a whole, the Group is now only confident of achieving an operating profit of between 1.4 and 1.8 billion euros (adjusted EBIT), having previously set a target of around 2.2 billion euros. In the second quarter, operating profit amounted to only 686 million euros after 1.1 billion euros in the same period of the previous year.
The outlook now depends to a large extent on the earnings performance at Lufthansa Airlines and the traditionally important fourth quarter at the cargo subsidiary Lufthansa Cargo.
City Airlines can do it cheaper
The savings program will not be sufficient in the long term, explains Lufthansa management, and therefore comes back to a fundamental conflict with the staff and the strike-happy unions. The recently launched company City Airlines is to operate an increasing number of European flights under the Lufthansa logo, which can only be at the expense of the existing Lufthansa Classic.
This is because it is significantly more expensive to operate than the new airline, which has not even concluded collective agreements for its flying personnel. It is hoped that Lufthansa will not become a pure long-haul airline, but will continue to offer profitable short and medium-haul routes in the future, Ritter asserts. The conditions for this have been better in the past.
