Why has Lufthansa's Earnings Position ‘Deteriorated Significantly’?
29.10.2024 - 09:55
/ skift.com
/ Gordon Smith
/ Kelly Ortberg
The Lufthansa Group painted a mixed picture on Tuesday as it reported its latest financial results. The German company said its earnings position “deteriorated significantly” in the first nine months of 2024 compared to a year earlier. This was despite record-breaking revenues and overall capacity growth.
The group posted a third-quarter operating profit of €1.3 billion ($1.4bn), a 9% drop from the same period last year.
The firm is best known for its flagship brand, Lufthansa Airlines, but it includes other big names such as Austrian Airlines, Swiss, Brussels Airlines, and Eurowings. It also operates large maintenance and cargo businesses.
In a market filing, the group highlighted growing competition and intensifying price pressure on its airlines. It said rival operators added capacity “market-wide,” most notably in the April to June quarter of 2024, with Lufthansa Airlines being particularly hard hit.
This saw average yields – the revenue earned by each passenger – falling by 3.5% compared to the same time in 2023. The network-wide figure masks a significant drop in the Asia-Pacific region, where yields plummeted by 14%.
Continued conflict in the Middle East also hit profitability. The company has the biggest exposure to the region of Europe’s three largest airline groups. Its regular schedule includes flights to countries including Iran, Iraq, and Israel. The resulting cancellation of services impacted earnings by between €60m and €100m ($65m—$108m).
As well as external factors, the company faced problems closer to home. The start of the year was marred by hugely disruptive strikes across the group. Lufthansa also had to navigate major labor stoppages at key airports and other partners. Quantifying the disruption, the company said the labor disputes cost it around €450m ($486m).
Owing to what the company described as “irregularities in flight operations,” the group was forced to pay out huge sums to affected travelers. Direct compensation payments for delays and cancellations, including under the European Union’s EU261 scheme, soared 118% year-on-year to €332m ($359m). Expenses for passenger assistance due to strikes and associated disruption rose by a fifth to €221m ($239m).
Delays in the delivery of new long-haul planes were a further drag on results. The problem is particularly acute at Lufthansa Airlines, which is using previous-generation aircraft such as the Airbus A340 while it waits for more fuel-efficient jets. In July the carrier reactivated its sixth A380 ‘super jumbo’ with a further two units currently due to re-enter service.
The airline is due to be one of the launch customers for Boeing’s new 777X plane. Earlier this month, Boeing CEO Kelly Ortberg said the first deliveries were