German airline group Lufthansa reported a decline in third-quarter profit as its flagship struggles with low yields. The company also faces competition from international airlines and spiralling cost. The company’s third-quarter operating profits of 1.3 billion euro (USD1.41 billion), were largely in line the expectations of the analysts it surveyed, but 9 percent lower than the year before.
CEO Carstenspohr said in a press release:
“Delayed deliveries, punctuality concerns at our hubs and regulatory disadvantages affect our core brand”
The third quarter is typically the best for European airlines. However, rising costs, unpredictability due to the Middle East crisis, and delays in plane deliveries continue to impact results.
After the announcement of the results, shares in Lufthansa fell by 2.5 per cent. Wizz Air, British Airways’ owner IAG, and easyJet shares also fell.
The passenger airlines of Lufthansa, which include the name-brand as well as Austrian Airlines and Swiss International, as well as Eurowings have generated an operating loss of 1.2 billion Euros in the third quarterly, down from its previous year’s 1.4 billion Euros.
The company said that the decline was primarily driven by a decline of 234 million euros in the result from its core brand Lufthansa Airlines. Analysts also said that the slower recovery of corporate travel contributed to the decline.
Alex Irving, Bernstein’s analyst, told Reuters:
“They face the toughest industrial background of any European airlines – they were most dependent upon corporate revenue before the pandemic.”
Ryanair says Lufthansa is trying hinder rivals in a dispute that has lasted for months over ghost flights. Spohr told reporters in a press briefing that, he does not believe that business travel in Germany and globally will return to the levels of 2019.
Lufthansa also complained repeatedly that it was struggling to compete with Chinese airlines still able to fly through Russian airspace. This led the airline to suspend its Frankfurt-Beijing route. The company reported a 14 percent drop in yields, a proxy of airfares, in the Asia-Pacific Region in the third-quarter.
“The fact Lufthansa has to remove one its oldest routes, Frankfurt – Beijing, from its flight timetable shows how the balance of international competitiveness is shifting,” a Lufthansa spokeswoman told Reuters via email.
“European Airlines are in a very unequal position of competition with China as well as airlines from the Persian Gulf or Bosphorus.”
The group launched a turnaround program at its core brands in an attempt to recover from a difficult earning year so far. Spohr said that stable or increasing ticket prices and continued demand for bookings will drive this.
Lufthansa issued two profit warnings in this financial year due to costs associated with strikes. The company estimates that by 2026 the cost-cutting measure will have an impact of 1.5 billion euro on the operating profit.
Lufthansa has confirmed its outlook for full-year, aiming for a group operating profit between 1.4 billion and 1.8 billion euro. It also maintained a target of 8 percent for its operating margin at mid-term. Analysts doubt whether this goal can be met by 2026.
According to a consensus of analysts and companies, the profit margin for 2024 is expected to be 4.3 percent.
