Lufthansa Group’s Hedging Policy Should Work Out Well

Thanks to above-average hedging of fuel at 78 percent and a flexible strategy, Lufthansa Group expects it can absorb the impact of the high fuel prices and operational constraints coming from the Middle East crisis. Based on current prices, the fuel bill will be €1.7 billion higher this year to €8.9 billion, the German airline group said today in its Q1 earnings call. The group is hedged 83 percent this second quarter, 78 percent for the remainder of 2026, and already 36 percent for 2027. This partly covers the jet crack between crude oil and jet fuel. However, that still leaves it 17 percent exposed to the current high prices. This risk has been a driver behind the recent decision to withdraw gas-guzzling Airbus A340-600s this October and park some Boeing 747-400s next winter. Lufthansa CityLine immediately wound down and parked its 27 older-generation Bombardier CRJs. Lufthansa also reduced capacity by one percent or 20.000 flights. Like many airlines, Lufthansa Group shifted capacity from the Middle East (-9.0 percent) to regions with higher demand like Asia (+3.5 percent), Africa (+10.2 percent) and South America (+3.7 percent). North America capacity was at -3.7 percent. These effects are higher yields, notably in the premium segments (+1.6 percent and even +5.0 percent in March). Long-haul capacity grew by 1.4 percent, but on short to medium-haul segments was down by 2.9 percent, resulting in 2.5 percent higher unit costs excluding fuel. Unit revenues were up 3.3 percent, and the load factor benefited and grew to 81.9 percent. Group results Lufthansa Group reported a consolidated net loss of €665 million, down from €-885 million in Q1 2025. Total revenues grew by 8 percent to €8.7 billion, a record high for Q1. Expenses were up 5 percent to €9.9 billion. Adjusted EBIT was €-612 million versus €-741 million, of which €-605 million (an 18 percent improvement) came from the network airlines Lufthansa, SWISS, Austrian Airlines and Brussels Airlines. The point-to-point carrier Eurowings produced a 7 percent lower Adjusted EBIT to €-215 million. Together, they achieved an operating margin of -7 percent. Adjusted free cash flow was €1.4 billion, liquidity stood at €10.3 billion and net debt including pension liabilities at €7.2 billion. “We are achieving what we set out to do and delivering on what we promised”, said Group CEO Carsten Spohr. Chief Financial Officer Till Streichert is “satisfied with the first quarter: the earnings improvement of €110 million already represents a substantial portion of what we had planned for the full year. At the same time, the current situation compels us to rigorously examine every lever available to reduce costs, improve efficiency, and mitigate risks to maintain our ability to act decisively.” [caption id="attachment_192122" align="aligncenter" width="775"] Lufthansa Group Q1 2026 results by segment[/caption] Lufthansa Airlines Strikes in February and March impacted Lufthansa Airlines by €40 million, with another €150 million for six days in April to be attributed to Q2. Yet, the parent airline improved Adjusted EBIT by 20 percent to €-443 million at a -12.7 percent operating margin. Revenues grew by 2 percent to €3.5 billion, and expenses were 1 percent lower to €4.1 billion. Passenger numbers were flat at 12.5 million. Lufthansa Airlines, which celebrated 100 years on April 6, said it continued to make progress with the Turnaround program. This should achieve €1.5 billion in improved earnings this year and €2.5 billion by 2028 through cost savings, higher earnings from new products and a new fleet. The carrier will migrate more capacity to City Airlines and Discover Airlines with their lower cost levels. LH also implemented a hiring freeze for non-operational positions and is reducing project spending by 10 percent. SWISS SWISS and Edelweiss improved Adjusted EBIT to €39 million from €-10 million last year, making it the only airline in the group with a positive operating margin (2.6 percent). Revenues were up 7 percent to €1.5 billion, expenses by 3 percent to €1.5 billion due to higher MRO costs. Passenger numbers were down 0.4 per cent at SWISS but up at Edelweiss, resulting in a combined 3 per cent gain to 4.3 million. The Middle East conflict made demand exceptionally strong in March, but higher yields don’t reflect the delayed impact of higher fuel costs, which will become fully visible in Q2. That’s why the Q1 results should be interpreted with care, said CFO Dennis Weber. Adjusted EBIT was flat at Austrian Airlines at €-112 million at a -23.2 percent margin. Revenues grew by 5 percent to €481 million from 2.7 million passengers, while expenses were up 3 percent to €607 million due to higher fees, charges and staffing costs. Austrian felt the effects of bad winter weather in January, the capacity reduction to the Middle East and high fuel costs. Brussels Airlines ended Q1 with a €-55 million Adjusted EBIT versus €-53 million last year, resulting in a -16.1 percent margin. Revenues were up 13 percent to €343 million, expenses by 11 percent to €417 million, mainly reflecting higher flight operations. The Belgian airline carried 14 percent more passengers at 1.9 million. [caption id="attachment_192127" align="aligncenter" width="746"] Austrian Airlines Boeing 787-9[/caption] Point-to-point Adjusted EBIT at point-to-point (leisure)carrier Eurowings was 7 percent down to €-215 million. The operating margin was -44.9 percent. The suspension of flights to the Middle East hurt Eurowings hard, as this has been a high-growth region in its strategy. By shifting capacity to Europe and growing capacity here by 5 percent, the carrier still improved revenues by 18 percent to €479 million. Expenses were up 14 percent to €644 million. Lufthansa Technik grew revenues by 12 percent to €2.3 billion due to high demand for MRO from third-party customers, but Adjusted EBIT was down by 2 percent to €158 million. The business unit is still affected by material and personnel shortages, tariffs and the weak US dollar. Lufthansa Cargo grew revenues by 5 percent to €876 million and Adjusted EBIT by 35 percent to €83 million. Capacity was 7 percent up. Outlook Demand remains resilient and was up 12 percent in April. This stages Lufthansa Group for a strong summer, but the fuel situation casts a shadow over the remainder of 2026. Thanks to the efforts of the German government to secure fuel supplies as well as alternative sources, Spohr is confident there will not be a fuel shortage until at least mid-June. Availability could be a risk factor in some regions later in the year. That’s why he is pushing the European Commission to temporarily allow tankering fuel, although this is only applicable to the short to medium-haul network. A question mark the current high demand: is it sustainable for the rest of the year, or will it drop off? This makes CFO Streichert cautious for the full-year guidance: “Our annual profit will likely be lower than originally anticipated. Nevertheless, based on current booking trends, we expect to be able to largely offset the high fuel costs successively - especially in the second half of the year. And the cargo business, which continues to perform well, provides additional support to the earnings situation. Provided there are no fuel supply bottlenecks or further strikes, I therefore remain confident, despite increased risks, that we can achieve a full-year result significantly above prior-year levels." Lufthansa Group remains on track to achieve an 8 to 10 percent EBIT margin, said Spohr. The group will develop more and more into a European airline and depends on only 20 percent on the German market. Fleet renewal will continue this year, after the group took delivery of seven aircraft in Q1, including five widebodies for Lufthansa Airlines, Austrian and SWISS.

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