Lufthansa hits third-quarter turbulence as core brand struggles

London/Berlin/Frankfurt — German airline group Lufthansa reported a drop in third-quarter operating profit on Tuesday as its flagship brand struggles with low yields, competition and spiralling costs.

Third-quarter operating profit of €1.3bn was 9% lower than the same period a year earlier, though largely in line with the expectations of analysts surveyed by the company.

“Delayed aircraft deliveries, punctuality issues at our hubs in Germany and regulatory disadvantages are affecting our core brand,” CEO Carsten Spohr said in a statement.

The third quarter, which includes the busy summer months for travellers, is usually the strongest for European airlines, but rising costs, unpredictability tied to the crisis in the Middle East and plane delivery delays continue to weigh on results.

Shares in Lufthansa were down 2.8% at 2.30pm after the results were announced. Shares in Wizz Air, British Airways owner IAG and easyJet also dropped.

Lufthansa’s passenger airlines, which include its namesake brand as well as Austrian Airlines, Swiss International and Eurowings, generated an operating profit of €1.2bn in the third quarter, down from €1.4bn a year earlier.

The decline was driven mainly by a €234m decline in the result of its core brand Lufthansa Airlines, the company said in a statement. A slower recovery in corporate travel also contributed, analysts said.

“They probably face the toughest industrial backdrop of any European airline — they were the most dependent on corporate revenue before the Covid pandemic,” Bernstein analyst Alex Irving said.

Spohr said he doesn’t believe business travel globally and especially in Germany will return to 2019 levels.

The airline has also repeatedly complained about its struggle to compete with Chinese carriers still able to fly over Russian airspace, prompting Lufthansa to suspend its Frankfurt-Beijing route.

Yields, a proxy for airfares, fell 14% in the Asia-Pacific region in the third quarter, the company reported. Yields refer to the average amount of revenue received per paying passenger. 

“That Lufthansa now must remove one of its oldest routes, Frankfurt-Beijing, from its flight schedule shows how much the balance of international competition is shifting,” a Lufthansa spokesperson said in an email.

“European airlines are in an extremely unequal competitive position with China, as well as with airlines from the Persian Gulf and Bosphorus.”

Turnaround

The group has commenced a turnaround programme at its core brand in an effort to recover after a difficult year to date. That will be spurred on by stable or rising ticket prices next year, Spohr said, as well as continued demand in bookings.

Lufthansa has already issued two profit warnings this financial year as it grapples with costs linked to strikes.

By 2026, the cost-cutting measures will have a gross effect on operating profit of about €1.5bn, the company said.

Lufthansa confirmed its outlook for the full year, targeting group operating profit of between €1.4bn and €1.8bn, and maintained 8% as a midterm target for its operating profit margin. Analysts have cast doubts on that being achieved by 2026.

The profit margin for the 2024 financial year is expected to come in at 4.3%, according to a consensus of analysts.

Reuters