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March 4, 2024
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Overcapacity and pressure on fares and yields in Europe are hurting the continent’s two biggest airlines. After Ryanair blamed excessive capacity at below cost prices for its 21 percent drop in profit in HY1 (to EUR 243 million) on July 29, today Lufthansa Group disclosed a significant weakening of its financial results for Q2 and HY1.

Ryanair’s Michael O’Leary specifically blamed the weak market in Germany and the UK for his lower results, despite an 11 percent increase in passenger numbers to 41 million and identical increase in revenues to EUR 2.31 billion. In Germany, Lufthansa and Eurowings are in neck-and-throat competition with the rest.

Lufthansa’s CFO Ulrik Svensson voiced similar concerns on July 30, saying: “Our earnings are feeling the effects of tough competition in Europe and sizeable overcapacities, especially on our short-haul routes out of Germany and Austria.” This particularly affects Dusseldorf, Berlin and Frankfurt.

HY1 adjusted EBIT for Lufthansa Group dropped 60 percent from EUR 1.052 billion to 418 million, resulting in a net loss of EUR -116 million compared to a 713 million profit last year. Operating expenses were 7 percent higher at EUR 18.269 billion. Revenues were up 3 percent to EUR 17.523 billion.
In Q2 adjusted EBIT dropped from EUR 1 billion to 754million, while revenues increased by 4 percent to EUR 9.633 billion. Net profit was down 70 percent, from EUR 752 to 256 million.
Long-haul traffic performed best, especially to North America and Asia.

By airline, SWISS performed best with an HY1 adjusted EBIT down ‘only’ 23 percent to EUR 213 million on 6 percent higher revenues at EUR 2.447 billion. Lufthansa’s adjusted EBIT was 43 percent down to EUR 403 million on 4 percent higher revenues (7.758 billion). Austrian felt the heat in a very competitive market in which easyjet, Lauda, LEVEL and to a lesser extent Wizz Air have been vying for their share of the cake. Austrian’s adjusted EBIT fell from EUR +5 million to -53 million, with revenues -3 percent to EUR 982 million. Of all three network airlines, Austrian improved its load factor best at +2.5 points.

Eurowings still sees red
Loss-making Eurowings adjusted EBIT slipped deeper into the red in HY1: from EUR -220 to -273 million, or from EUR -8 to -10 million in Q2. Revenues for the first six months remained almost flat at EUR 1.942 billion but operational expenses increased by 3 percent.
Eurowings improved its Q2 results thanks to better results on its long-haul business, while the short- and medium-haul network showed substantial declines at reduced capacity. Lufthansa reconfirmed its plans announced at its Capital Markets Day in June that Eurowings will concentrate on point-to-point short-haul. It remains to be seen if the ‘new’ Eurowings will fare better under this revised strategy in which unit costs should be reduced by 15 percent and break-even in 2021.
On a positive note, Eurowings improved punctuality by 7 percent and reduced cancelations by 23 percent.

Lufthansa Cargo traffic and revenues fell 5 percent as volumes and pricing on routes to Asia were lower. Adjusted EBIT was down 88 percent from EUR 127 to 15 million. Lufthansa Technik improved from EUR 227 to 243 million, while LSG catering was down from EUR 40 to 33 million.

Weak fares will continue
Both Ryanair and Lufthansa expect the current weak fare environment and intra-European competition to continue during the remainder of 2019. Lufthansa is happy with the progress it is making on its reform plans, but forecasts low single-digit growth in revenues and 5.5 to 6.5 percent increase in adjusted EBIT. Long-haul is expected to be the biggest driver in profit, but uncertainties are just around the corner: “With the overall economic prospects growing gloomier in the Group’s home markets, the risks of second-half year business trends falling short of their first-half year levels have increased. Actual developments in the long-haul business will depend to a large extent on short-term bookings (especially for the premium cabins) whose development is currently impossible to fully predict.”

Europe’s other big airline groups Air France-KLM will present its HY1-results on July 31 and IAG on August 2.

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Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.

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