Lufthansa Sees 'Extraordinarily Strong' Travel Demand

25.08.2023 - 13:05 / skift.com / Edward Russell / Carsten Spohr / Airlines

Nothing, it seems, can slow the Lufthansa Group down. Robust travel demand, particularly for its premium offerings, drove record profits in the second quarter and has lifted its outlook for the rest of the year.

“Demand remains extraordinarily strong,” group CEO Carsten Spohr said during a June quarter earnings call Thursday. That is driving its forecast of a roughly 25% increase in revenue earned per passenger mile flown, or unit revenues, in the third quarter. The biggest gains are to Asia, where many countries only began reopening late last year, and across the Atlantic to the Americas.

Demand for air travel, however, looks a lot different than it did four years ago:

This is broadly the trend in Europe where the recovery is six months or so behind the U.S. Travel demand remains robust and yields, a rough proxy for airfares, continue to rise sharply. This was the story at Air France-KLM, International Airlines Group — owner of British Airways and Iberia — and Ryanair, all of which have already reported second-quarter results. People continue to be willing to pay up for travel both within Europe and on long-haul international routes.

This contrasts with the U.S. where the domestic market surged last year. That has resulted in yield declines at most domestic-focused airlines despite what is broadly agreed to be continued strong travel demand. American Airlines, Delta Air Lines, and United Airlines have largely bucked this trend due to their large international networks where yields continue to rise.

The Lufthansa Group reported a record $1.2 billion (€1.1 billion) adjusted operating profit in the second quarter. That equaled a nearly 11% adjusted operating margin for the period. Revenue was up 17% from last year to $10.3 billion. And yields were up a quarter from 2019 levels on nearly 18% less capacity.

The group includes its namesake carrier Lufthansa plus Austrian Airlines, Brussels Airlines, Eurowings, and Swiss International Air Lines. Within the group, Swiss was the strongest performer in the second quarter, generating a nearly 18% operating margin.

Here are five takeaways from Lufthansa’s second-quarter earnings call.

Airport staffing, air traffic control constraints, spare part shortages, and delays to new aircraft all came at the expense of growth in the second quarter, Spohr said. Lower capacity growth and productivity meant higher unit costs — a metric that measures how much it costs an airline to transport a passenger — for the period and likely the year.

Both Spohr and group Chief Financial Officer Remco Steenbergen said the increases are warranted given the operational improvements; 70% of group flights departed on time in the first half, a 4 point improvement from last year’s chaos.

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