Lufthansa Expects Fast Recovery After Dismal First Quarter
FRANKFURT—Lufthansa Group expects a steep recovery in the second half of 2021 after posting disappointing results for the first quarter (Q1) of the year.
The airline now anticipates it will offer 40% of pre-pandemic capacity on average for the full year. That figure is at the low end of its previous guidance after flying was heavily impacted by the slower than expected beginning to 2021.
“The start was not what we had hoped for,” CEO Carsten Spohr told analysts and reporters on April 29. “But the return of better times is on the horizon. We have confidence that the worst is already behind us.”
Europe is lagging behind North America in vaccination rates and, as a result, its aviation sector’s recovery from the pandemic lags as well. In Q1, traffic fell by 87.8% compared to Q1 2019 on 78.8% less capacity. Lufthansa’s load factor only reached 45%, a decline of almost 33 percentage points on Q1 2019. The airline carried three million passengers, a reduction of 89.7%.
The devastating performance was also reflected in Lufthansa’s financial results: revenues dropped by 60% to just €2.56 billion ($3.1 billion). The airline posted a €1.1 billion operating loss and a €1.05 billion net loss for the period. Free cash-flow was at negative €947 million.
Spohr predicted, however, that the airline will be able to offer around 50% of 2019 capacity in the summer, much more than the 21.2% in Q1. It also has flexibility to raise production to 70% should demand justify such a move. “People want to travel,” he said. “When it is safe they book and fly.”
Spohr also supported the proposed EU COVID-19 pass that involves digital or paper health certificates detailing testing or vaccination progress. He said comments by European Commission President Ursula von der Leyen indicating that transatlantic routes could be reopened for U.S. travelers were also “highly welcome.”
Greece and Croatia, both EU member states, have already indicated that they will allow U.S. passengers in. Spohr argued that soon it will be unavoidable for the EU as a whole to follow suit as American tourists could freely travel within the bloc anyway once they had entered. “There is a huge political will to open up Europe,” he said.
Spohr said that the airline’s current restructuring will be of benefit for years to come. “We have accelerated the modernization and restructuring, he said, adding, “[The crisis] forces us to overcome our known weaknesses.” Spohr referred to the airline’s ability to cut costs much faster than expected. “The current transformation will strengthen our global role,” he predicted.
Lufthansa Group operated 850 aircraft before the coronavirus pandemic. It plans to fly no more than 650 for the foreseeable future but still offer up to 90% of pre-crisis seat capacity through the use of larger aircraft and more efficient scheduling. The group plans to take delivery of 11 Airbus A320neo family aircraft and one A220-300 this year.
Spohr made clear that, unlike other carriers, Lufthansa remains committed to its firm order for the Boeing 777X. “We believe it is the right aircraft for us when it comes,” he said. The delay to the end of 2023 helps it space out the arrival of the very large aircraft. The airline is currently in the process of renegotiating the delivery schedule. Lufthansa has an order for 20 777-9s.
The Lufthansa CEO said he does not share the pessimism some express with regards to business travel. Chief Financial Officer Remco Steenbergen predicted that corporate travel will begin to recover towards the end of 2021, with smaller companies coming back first. Volumes could be back to 80% in 2024 and 90% in 2025. He also pointed out that Lufthansa could opt to shrink business class cabins, for example from 48 to 36 seats on the A350-900. Also, the retirement of large aircraft such as the 747-400 and the A380 had a particularly strong impact on business and first class capacity.
Steenbergen also pointed to high hopes for the premium economy cabin. He said the revenue potential per square meter is 39% higher than in business class.
Lufthansa is asking its shareholders at the May 4 annual general assembly to approve a capital increase equivalent to the €5.5 billion silent participation granted by the German federal government. “An equity raise will be needed, but the amount remains to be determined,” Steenbergen said. It will be less than the framework set and could be launched later in 2021 or 2022. Lufthansa aims to pay back the state aid as soon as possible, replacing it by issuing fresh equity or securing long-term debt.