Lufthansa expects drop in Q3 revenue as costs surge due to strikes and delayed aircraft deliveries

Lufthansa Group is expecting a slump in its third-quarter revenue as it faces mounting costs, particularly tied to strikes, delays in aircraft deliveries and related inefficiencies, as well as structural problems.

This was announced in the group’s second-quarter report for 2024 (Q2 2024), during which it saw revenue rise to €10 billion from the €9.4 billion recorded in the same quarter in 2023. Its net profit for the April-to-June period amounted to €469 million, a substantial drop from the €881 million recorded in Q2 2023.

Air fares across Europe and Asia have experienced a plateau or fall in recent months, marking the slowdown of the post-COVID-19 pandemic pent-up demand. This has served as a setback to many airlines which are struggling with aircraft availability, particularly due to delays in aircraft deliveries.

Lufthansa Group stated that aside from an increasing “normalisation” of ticket prices as well as an associated market-related decline in yields, strikes at a number of its companies and external system partners had an impact on earnings for the period by more than €100 million.

Additionally, operating expenses increased by 10 per cent due to the expansion of passenger flight operations and also due to inflation-related cost increases.

Lufthansa Group is made up of Lufthansa Airlines, Austrian Airlines, Brussels Airlines, SWISS, and Eurowings. It has an established presence in Malta, being frequently used for business travel across some of Europe’s hubs. It operates around 70 weekly flights to and from Malta, connecting it to the likes of Germany, Switzerland, and the world.

The group stated that more than 60 million passengers flew with its airlines in the first six months of 2024, a 10 per cent rise on the same period last year. 36 million of these passengers came in Q2 2024 alone.

Carsten Spohr, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG remarked that “flying has lost none of its fascination, global demand for air travel remains strong.”

Despite this, he noted that due to the increase in available seat capacity, the normalisation of air fares and average yields continued across all markets during the first half of 2024, thus resulting in Lufthansa Group having to adjust its profit expectations, as has been the case for many airlines.

 “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,” Mr Spohr stated.

He said that the group aims to accelerate Lufthansa Airlines’ overall modernisation through a turnaround programme to “make it the group’s flagship again.” This programme includes a focus on customer experience through further digitisation, an optimisation of its network, and also reducing its fleet to six long-haul aircraft types.

While global demand for air travel has remained very strong, prompting Lufthansa Group to anticipate a good summer in travel volume trends, it still forecasts a drop in its earnings.

The group stated that it assumes yields in the third quarter will be slightly lower than 2023 levels, with unit costs expected to rise to a similar magnitude.

In fact, Lufthansa Group’s adjust earnings before interest and tax (EBIT) is set to fall short of its 2023 level (€1.5 billion), mainly due to the challenges that Lufthansa Airlines is facing.

Its EBIT has been adjusted to €1.4 to €1.8 billion for 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,” Lufthansa Group stated.

Chief Financial Officer Michael Niggemann said that despite the aforementioned challenges, Lufthansa Group still expects a positive annual result, not least in view of the measures it has introduced safeguard earnings.

“Excluding the strike effects, we are convinced that we will achieve stable unit cost development for the year as a whole,” he added.

For this summer, the most popular destinations for Lufthansa Group travellers are Spain, Portugal, Italy and Greece. For long-haul travel, the most popular destinations are the United States, Japan, and South Africa.