Lufthansa's CEO on Second Quarter Results

In a post on LinkedIn, Jens Ritter, CEO of Lufthansa Airlines, shared his reaction regarding the financial results of the Lufthansa Group for the second quarter of 2024.

Ritter's Post

"Turnaround. This is what we will call our new program to get back on track for good. Today, we published our half-year results. A few weeks ago, we already informed the capital market and the public that we expected our numbers to be bleak: Our loss of minus 427 million euros marks the worst half-year result in our history, excluding the COVID-19 years. But today we can describe how we want to tackle the significant financial challenge. We are initiating a comprehensive turnaround program focusing on five key areas:

• Commercial: We will further invest in Allegris, enhance our ancillaries’ offers and continuously review our current network. Like our sibling Swiss International Airlines, we will concentrate on ONE wetlease partnership.
• AOC and Fleet: We reduce complexity and focus on three AOCs only: Lufthansa Classic, Lufthansa City Airlines and Discover Airlines. We will phase out older aircraft and by 2028, Lufthansa Classic operates only five long-haul aircraft types.
• Efficiency: We will leverage synergies between AOCs. Together with our social partners we will negotiate a “future pact” for more flexibility and seasonality. AI will support us, e.g. in planning our maintenance events.
• Ops-Quality: We will stabilize our ops, e.g. by adjusting our flight schedule for more resilience, by extending the minimum connecting time in Frankfurt and reducing crew-aircraft-changes.
• Partnership Management: We also expect support from our system partners, e.g. concerning fees, procurement and MRO, to improve our productivity and profitability.

Currently, we develop further measures and more details! This program aims to enhance quality, efficiency, and reduce complexities. Above all, one thing remains constant: we will continue to invest for our customers, e.g. in new aircraft, seats, and lounges, in a better onboard customer experience and service. For some people this seems minor, others consider it huge. This is why we offer background information for all our employees. Writing down these changes is one thing, yet really explaining it in detail, listening to their concerns is a completely different task. I am looking forward to realizing the opportunity in it. Bad numbers can be scary. Yet actually having a plan feels revitalizing! There are tough decisions to be made, but I am convinced that together with our employees, our loyal customers and shareholders we will navigate these challenges."

Niggemann Speaks

In addition, Michael Niggemann, chief financial officer of Deutsche Lufthansa AG, has also shared his views on the results: “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."

Lufthansa's 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's net result amounted to 469 million euros (prior-year period: 881 million euros). The prime drivers here were the 11% expansion of the flight programme in the passenger business and the strong performance in the MRO segment, whose second-quarter revenues were 16%.

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 & 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).

Comprehensive Turnaround Programme

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 labour 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 programme to increase efficiency, reduce complexity and improve quality, and thereby make the core brand fit for the future.

The Programme 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' programme, 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.

Balance Sheet Strengthened

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 5.6 billion euros compared to the end of 2023 (December 31, 2023: 5.7 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.

Financial Outlook

Global demand for air travel remains very robust, especially among private travellers. 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.