Next to no passenger airline will come out of the pandemic unscathed. Even so, the toll it is taking is shocking. The Lufthansa Group’s half-year results show that despite certain cost-cutting measures already being applied – including the termination of 8,300 staff so far – the aftereffects are here to stay for the next four years at least. The second quarter saw the Group’s adjusted EBIT drop to minus 1.7 billion euros, compared to 754 million euros in the previous year, with a consolidated Q2 net income of 1.5 billion euros (226 million in Q2/2019), mainly generated by Lufthansa Cargo and Lufthansa Technik.
Commenting on today’s highly sobering mid-year results, Carsten Spohr, Chairman of the Executive Board and CEO of Deutsche Lufthansa
AG, said: "We are experiencing a caesura in global air traffic. We do not expect demand to return to pre-crisis levels before 2024. Especially for long-haul routes there will be no quick recovery. We were able to counteract the effects of the coronavirus pandemic in the first half of the year with strict cost management as well as with the revenues from Lufthansa Technik and Lufthansa Cargo. And we are benefitting from the first signs of recovery on tourist routes, especially with our leisure travel offers of the Eurowings and Edelweiss brands. Nevertheless, we will not be spared a far-reaching restructuring of our business.
We are convinced that the entire aviation industry must adapt to a new normal.
The pandemic offers our industry a unique opportunity to recalibrate: to question
the status quo and, instead of striving for "growth at any price", to create value in a sustainable and responsible way.”
The tragic second quarter
1.7 million is the number of passengers travelling on Lufthansa Group airlines in the second quarter of 2020. Though an impressive number to the untrained ear, this actually represents a staggering 96% drop in comparison to 2019. Capacity fell by 95% while the seat load factor dropped 27%-points to previous year and stood at 56%. Overall, for 2020, this means a total of 23.5 million passengers (66% less than previous year), a capacity decrease of 61% and a seat-load-factor drop of 9%-points to 72%. The Group’s net result for the first six months of 2020 is minus 3.6 billion euros (compared to minus 116 million in 2019) and includes a negative impact of 782 million euros through fuel hedging contracts.
Lufthansa Cargo (and Lufthansa Technik) brought the money in
Though passenger belly capacity fell by 54% in the second quarter, overall there was a 10%-point cargo load factor increase to 71%, as Lufthansa Cargo experienced a strong second quarter, flying full throttle and utilizing Lufthansa preigthers in addition to its freighter fleet. So far, in 2020, the cargo load factor has increased by 4%-points to 66%, while overall cargo capacity is down by 36%. “The logistics division benefited from stable demand. The loss of cargo capacity in
passenger aircraft ("bellies") led to a significant increase in yields. Lufthansa
Cargo's Adjusted EBIT thus rose to 299 million euros (previous year: minus 9 million euros),” the press release reads. Lufthansa Cargo (along with Lufthansa Technik) was the main contributor to the Group’s net income of 1.5 billion euros in Q2.
“ReNew” to ensure global competitiveness
“ReNew” is the restructuring program the Group has put in place, to stabilize the current situation by 2021 and come out stronger by 2024, which is the earliest it expects to have recovered to pre-crisis travel levels. This includes restructuring its airlines and service companies, and the workforce by around 22,000, of which 8,300 have already been let go. The press release states that “redundancies no longer ruled out in Germany as well”, with decreases in Executive and Management Boards, as well as a 20% decrease in executive positions and 1.000 administrative positions at Deutsche Lufthansa AG. Its fleet will also see a reduction of at least 100 aircraft, but with a focus on increasing productivity by 15% (by reducing flight operations to a maximum of 10 AOCs) to cope with the expected numbers.
Austrian Airlines’ CFO Wolfgang Jani: “The crisis hit us with full force”
According to Wolfgang Jani, business is slowly recovering since flights resumed on 15JUN20, after almost 3 months’ of being grounded: “Business trips and tourist travel as well are slowing picking up steam. Nevertheless, we only expect a slow ramping up of the aviation industry. The crisis is far from over, and this will be reflected in the performance indicators for the entire year”. So far, Austrian Airlines has reported an adjusted 2020 half-year EBIT of minus 235 million euros, a 70% decline in number of passengers carried, and despite a number of landing bans in effect between 16-31JUL20 which further hampered operations, Austrian Airlines is more positive about the future, reporting that a number of holiday destinations have seen flight bookings, with passenger loadfactors between 60-70% and even averaging 90% on certain routes.
Brussels and Swiss
Over at Brussels Airlines, which also resumed operations with a limited schedule from 15JUN20, the press release is less optimistic: “Due to the still volatile and highly unpredictable situation worldwide, it is not possible to make forecasts for 2020 as a whole.” The company reported a 63% drop in revenues, from 684 million euros to 252 million euros, and has accelerated its “Reboot Plus” turnaround program, which was already in place prior to the pandemic, and looks to improve its cost structure and optimizes its network by cutting marginally profitable and unprofitable routes, resulting in a fleet reduction of 30%, and an overall 25% smaller company and workforce.
Swiss only published its first quarter figures back on 03JUN20, where it already reported a loss of 78 million euros. It had managed to keep a number of flights operating between 23MAR20 and 31MAY20, between Switzerland, Europe and the USA, and was also looking to increase frequencies again. On the cargo side, some 375 cargo-only flights had been performed since the end of March, using three of SWISS’s 12 Boeing 777 aircraft stripped of their Economy Class seating for added cargo capacity.
The future is still unstable, as number start to rise again in various countries, and the risk of further flight bans or border closures loom.
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