Lufthansa Airlines’ Turnaround Comes In Small Steps

Lufthansa Group produced a €1.339 billion net profit for 2025, down three percent compared to 2024 and lower than what Air France-KLM (€1.754 billion) and International Airlines Group (IAG) (€3.342 billion) reported recently. While revenues grew 5.4 percent to €39.6 billion, the Adjusted EBIT was up 19 percent year-over-year and the operating margin up 0.5 points to 4.9 percent, Lufthansa Group has more work to do. We look at parent airline Lufthansa Airlines and SWISS. Lufthansa Airlines Lufthansa Airlines improved the Adjusted EBIT to €148 million, up from an €94 million loss in 2024. Adjusted EBITDA was up by some €250 million to €935 million. Revenues grew by three per cent to €17.1 billion, thanks to 65.7 million passengers carried and a three per cent increase in capacity. But look at the operating margin: while it improved from minus 0.6 percent to plus 0.9 percent, it is the weakest of all major European carriers and likely of the entire industry. Remember that Iberia reported 16.2 percent last week? The margin is even the lowest within the Group, with SWISS on top at 9.3 percent. Group CEO Carsten Spohr admitted during today’s media presentation in Frankfurt that leisure subsidiary Discover was an important contributor to Lufthansa Airlines’ improved results. “Without Discover, the result of Lufthansa would have been smaller. It confirms how important Discover is, with its lower cost structure.” In other words, Discover has likely made Lufthansa’s day. Spohr went along to compare Lufthansa Airlines’ result with the list price of a Boeing 787-9. “Our Adjusted EBIT of 148 million is half that of a 787. Our result isn’t enough to buy a Dreamliner. This demonstrates that Lufthansa needs to be more profitable. At the same time, we promised a significantly higher operating profit for 2025, and we delivered.” For a couple of years, Lufthansa has been performing to sub-standard levels in the industry. It has seen a weak operational performance, partly to be blamed on the various strikes in the past years. The mixed fleet with too many older types, mostly because new aircraft deliveries were consistently late, resulted in higher operating and unit costs. Turnaround Lufthansa’s answer is Turnaround, launched in late 2024 as a program with over 700 initiatives to improve its position. It should deliver €1.5 billion in gross earnings improvements this year, increasing to €2.5 billion by 2028. CFO Till Streichert said that the effects have already been measurable in 2025, despite the escalation of non-fuel costs. CASKs were coming down from 3.6 percent in the first two quarters to 0.5 percent in Q3 and were practically flat in Q4 compared to the previous year. This year, Streichert hopes to limit CASK growth to half that of inflation. Lufthansa Airlines contributed more than €500 million gross to the Turnaround program last year. “Targeted optimisation measures – especially in ground processes and crew planning – increased punctuality significantly. This lifted punctuality and regularity rates higher than before the outbreak of the coronavirus pandemic”, the earnings report says. The Adjusted EBIT margin should improve to high single-digit margins in the next few years, thanks to three pillars. Productivity should improve by seven percent this year. “Key decisions were also taken to achieve lasting efficiency gains in terms of crew productivity. New needs-based planning rules enable better seasonal crew planning and reduce the personnel requirement significantly. This makes a direct, lasting contribution to improving earnings”, the earnings report says. Leisure airline Discover Airlines and Lufthansa City Airlines, launched in June 2024 as a feeder airline for the network parent, play a major role in the aim for higher productivity thanks to their lower cost structures. City Airlines will grow to 18 aircraft by the end of this year, and Discover to 32 as Lufthansa wants to grow the leisure carrier. Yields should benefit from higher ancillary revenues (€60 million), an improved fare structure (€50 million), and lower fuel costs from more efficient aircraft (€40 million). The One IT digital optimisation program has produced €50 million in cost savings so far, but should generate €200 million per year in savings by 2030. [caption id="attachment_189813" align="aligncenter" width="721"] Lufthansa fleet plan 2026[/caption] Pillar three is the continued rollout of Lufthansa’s Premium offering through the Allegris cabins. By the end of this year, 50 percent of the long-haul fleet will have Allegris, either as a retrofit or as a factory-new delivery. Lufthansa was recently cleared to offer the Business suites on the Boeing 787-9s for sale after they were finally certified by the FAA. Allegris should boost unit revenues by 12 percent compared to the older product. Speaking of aircraft, Lufthansa Group took delivery of 23 new ones in 2025 and is hoping to get 45 this year: 17 Boeing 787-9s, 10 Airbus A320neos, six A350-900s, five A321neos, four A350-1000s (the first in September), and three A220-300s. Of these, 36 will come with Allegris. This means the Group will take delivery of one new aircraft every week. Older types will be gradually phased out, like the A340-600 by the end of this year, the A330-200s next year, and the 747-400s and Canadair regional jets. The 747-8i and eight A380s will remain in service for some years, as is confirmed by the cabin update that has just started on the first A380. The cargo capacity of the 747-8i makes it an attractive aircraft to have in the fleet, said Spohr. Their fate will eventually depend on the delivery schedule of the Boeing 777-9s and Airbus A350-1000s on order. The first 777-9 is now due in Q1 2027 for entry into service in the summer season. Lufthansa’s management remains concerned about the high cost environment in its domestic market, as well as in Europe. Spohr has voiced his concerns many times before about the uneven playing field, with EU airlines suffering from higher taxes, offsetting costs, and sustainable aviation fuel mandates that non-EU airlines don’t have. He once more called on the European Commission to address the imbalance between environmental and economic priorities. The new German government seems to understand the problem that something needs to happen to reduce cost levels in Germany. Spohr sees a reduction in aviation taxes as a first step. The geopolitical tensions in the Middle East and Gulf, resulting in the Gulf carriers suspending most of their operations this week, demonstrate how vulnerable their hub network is. Spohr referred to the Gulf region as the “Achilles Heel” of aviation. In his view, it confirms the need for a strong aviation sector in Europe. In the short term, the Iran crisis is resulting in chaos and flight disruptions, of which Lufthansa Group’s airlines are trying to cope with. It also increases oil and jet fuel prices, although Streichert is happy that he has hedged fuel for 82 percent this quarter and 77 percent for the full year. On the other hand, the current situation offers opportunities as a shift in travel patterns has become evident, says Spohr. “In the last five days, we have seen bookings for April to Asia and Africa soar by 75 percent.” Lufthansa will grow its offering to Korea and Japan and this week announced Kuala Lumpur as a new destination. India has many growth opportunities, reason for Lufthansa to sign a partnership with Air India to grow its footprint. India has now overtaken China as Lufthansa’s second strongest market behind the North Atlantic. This market remains strong, notably premium, although the point of sale in the US is higher than Europe. Overall, long-haul capacity should grow by six percent this year, while short-haul capacity will be consolidated. Thanks to ITA Airways, the Group has doubled its capacity to Brazil. As part of the acquisition plan of ITA, Rome will be developed as a hub to further grow in the southern hemisphere and South America. Spohr said that his airline will decide in June whether to grow its share in ITA Airways from the present 41 percent to 90 percent, but the terms of the transaction are still being negotiated with the Italian government. [caption id="attachment_189814" align="aligncenter" width="836"] SWISS Airbus A350 900[/caption] SWISS While Lufthansa Airlines is slowly on the way up, SWISS has lost some of the leading position it has held for years. Adjusted EBIT was down by 25 percent to €600 million, including leisure airline Edelweiss. Revenues were flat at €6.5 billion, and passengers carried grew by just two percent to 21.5 million. The earnings report attributes the lower result to “higher fees and charges and staff costs. Weaker demand on routes to North America and bottlenecks in the availability of aircraft and engines also had an adverse impact. The Adjusted EBIT margin declined by 3.1 percentage points to 9.3 percent (previous year: 12.4 percent).” Carsten Spohr said: “One must consider that SWISS had a very strong 2024, which makes the drop look even bigger. But we have to admit that we don’t see the productivity levels at SWISS that we have seen in the past four years. It is up to CEO Jens Fehlinger to make sure that SWISS will not lose its exemplary status within Lufthansa Group. Zurich remains our strongest market, but SWISS needs to bolster its profitability.” In Zurich, Fehlinger addressed the problem during his own earnings call. “Our earnings decline sends a clear message. We must raise our efficiency and lower our costs. It’s all the more crucial for us to slim down our structures and make ourselves sustainably more efficient. An airline that doesn’t grow but shrinks will lose its competitive edge. We’re determined to consolidate our position and return SWISS to profitable growth. And we’ll be laying the foundations for doing so throughout 2026.” Other airlines A quick look at the other airlines of Lufthansa Group. Austrian Airlines improved the Adjusted EBIT by seven percent to €81 million and grew revenues by three percent to €2.5 billion. The EBIT margin was up by 0.1 percent to 3.1 percent. Brussels Airlines reported a 53 percent drop in Adjusted EBIT to €28 million and an EBIT margin down by 2.1 points to 1.7 percent. Revenues were up seven percent to €1.7 billion. “The previous year’s earnings were buoyed by non-recurring effects. Earnings in the reporting year were reduced by an estimated €15 million as a result of seven nationwide protest days in Belgium, which caused severe operating restrictions at Brussels Airport.” After a few strong quarters, point-to-point (leisure) airline Eurowings reduced the Adjusted EBIT by 35 percent to €132 million, resulting in a 2.8 points lower margin of 4.3 percent. Revenues improved by seven percent to €3.1 billion. However, there is a logical explanation: “This change mainly reflects the decline in the result from the equity investment in the SunExpress joint venture, which fell by 87percent to €10 million (previous year: €75 million), as well as the decrease in yields due to intense price pressure and passengers’ increased price sensitivity in relation to leisure flights.” Looking ahead, Lufthansa Group plans to grow capacity this year by on average four percent and the Adjusted EBIT significantly above the 2025 level of €2.0 billion. The Adjusted Free Cash Flow should be around €0.9 billion, down from €1.2 billion last year.

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