Lufthansa Airbus A350
Significantly higher fuel costs, strikes, and lower capacity: these are the ingredients for Lufthansa Group’s lower Q2 profit and HY1 loss. Despite strong demand and higher yields from premium products, only SWISS produced solid results. The airline group is positive that full-year Adjusted EBIT can exceed 2025 levels.
Consolidated Adjusted EBIT for Q2 was €383 million, down from €870 million year-over-year, resulting in an operating margin of 3.4 percent. The net profit was €123 million. Revenues grew 8 percent to €11.1 billion, reflecting strong demand, with revenues per available seat kilometre (RASK) up 6.5 percent at the network airlines Lufthansa, SWISS, Austrian Airlines, and Brussels Airlines and even up 9.4 percent at point-to-point/leisure carrier Eurowings.
The network carriers saw the highest yield to Asia Pacific (up 13.3 percent), with premium up 6.7 percent. Overall capacity was down 3.3 per cent, mainly due to the impact of the Middle East (11 destinations are still suspended) and to multiple strikes and network optimisation, as Lufthansa Cityline was grounded in late April. Eurowings and Discover operated at 6.5 percent lower capacity. Total passengers carried were down one percent to 60.7 million.
Lufthansa Cargo grew yield by 27 percent. The positive effects were offset by €750 million higher fuel costs and €150 to €200 million in costs related to strikes in April. Total expenses stood at €129.6 billion.
The HY1 consolidated Adjusted EBIT was €-229 million compared to €149 million last year. This pushed the operating margin down to -1.1 percent. The net results turned from a €127 million profit into a €-542 million loss. Again, revenues were up 8 percent to €19.9 billion, but expenses were higher at €21.4 billion.
CEO Carsten Spohr said: “Despite our further improvement in load factor and a significant increase in yield, we were unable to fully offset the considerable rise in fuel costs. The continued strong global demand for air travel—primarily in the premium classes—had a particularly positive impact. Our numerous investments in premium products such as Allegris, Swiss Senses, and the Future Onboard Experience (FOX) service upgrade are beginning to pay off. At the core Lufthansa brand, all three elements of the turnaround program are now taking effect: fleet and product renewal is making visible progress, capacity at the highly efficient Discover Airlines and Lufthansa City Airlines is being continuously expanded, and competitiveness is being enhanced through numerous productivity and efficiency measures.”
Lufthansa Airlines
Parent carrier Lufthansa Airlines was hit the hardest by the headwinds, resulting in an Adjusted EBIT of €-37 million in Q2 and €-480 million in HY1. The operating margin was -0.8 percent, so Lufthansa continues to be the worst-performing European airline. Revenues grew by just one percent to €8.1 billion. Operating expenses were up two percent to €8.8 billion, not just from higher fuel but also from the effect of salary increases in collective bargaining agreements.
Yet, CFO Till Streichert said that the Turnaround program is making progress and will deliver on its €1.5 billion target this year and €2.5 billion in 2028. Turnaround should deliver €700 million from fleet renewal and the roll-out of the Allegris cabins and products, €500 million from shifting capacity to lower-cost subsidiaries City Airlines and Discover, and wet lease optimisation, plus €1.2 billion from higher productivity, network adjustments and efficiency gains. The grounding of Cityline will save €180 million per year.
Additional measures will have a €150 to €200 million effect on Adjusted EBIT. Lufthansa has reduced its workforce by 500 employees out of the 4.000 as the group introduces AI to automate processes. At the same time, City Airlines and Discover will grow and get nine more aircraft.
SWISS
Once again, SWISS was the best performer within the group, despite a weak Q1. SWISS and Edelweiss produced a €174 million Adjusted EBIT in Q2 or €213 million in HY1, up 9.3 and 4 percent yoy, respectively. Revenues grew 9 percent to €3.3 billion, expenses by 7 percent to a similar amount. SWISS mentions high maintenance costs as a factor, related to the grounding of many P&W Geared Turbofan-powered Airbus A220s and A320neo family aircraft. Fuel costs were up 50 percent.
On the positive side was strong demand for direct flights from Zurich to Asia when Middle East carriers reduced capacity early in Q2, but this effect was only temporary until the ME airlines restored capacity. SWISS carried 8.5 million passengers in HY1, up 0.6 percent, but capacity was down 4.1 percent yoy.
CEO Dennis Weber was happy about the strong demand for premium. “Demand for our premium travel classes on our long-haul routes in particular remained encouragingly high, and helped bolster our earnings for the period. But this strong travel demand and our rigorous cost discipline were still not enough to fully offset the adverse effects of the higher fuel prices.”
Austrian Airlines
Austrian produced a €19 million Adjusted EBIT in Q2, but reported a €-93 million loss for HY1. Six-month revenues grew 4 percent to €1.2 billion as the airline carried 6 percent more passengers at almost seven million at a flat capacity. Operating expenses were up 6 percent to €1.3 billion, with the fuel bill up €60 million over last year.
Higher ticket prices partly offset rising costs during the peak of the Middle East crisis, but Austrian implemented additional cost reductions and efficiency measures to keep costs down. Coming winter, the airline will terminate routes that are no longer economically viable, like the domestic route between Vienna and Graz. CEO Annette Mann said that Austrian needs to improve its financial resilience and hopes to end the year in the black.
Brussels Airlines
Brussels Airlines was loss-making in both Q1 (€-15 million) and HY1 (€-70 million). Nine percent higher revenues to €821 million and eight percent more passengers to 4.5 million were insufficient to offset rising expenses, up 12 percent to €924 million. Fuel was €64 million more expensive.
Brussels Airlines was not affected by just the higher fuel crisis, but its Africa network suffered from the outbreak of Ebola in East Africa. “This resulted in lower travel demand and posed several operational challenges, as crew scheduling and destination restrictions imposed by certain countries created additional operational complexity.” Then there were strikes at third-party companies, costing €3.0 million extra.
Eurowings
Eurowings was at a €-37 million loss in Q2 and €-252 million in HY1. The capacity reduction of two percent resulting from the Middle East crisis and the higher fuel costs hit the leisure carrier, with an additional effect from the pilot strike. Passengers carried were flat at 10.4 million. Targeted ticket pricing resulted in 7.9 percent higher unit revenues that partly offset rising fuel costs, but unit costs were up by 10.9 percent.
The financial results still do not fully include ITA Airways, as Lufthansa Group has only a minority share. It expects to get approval next year to grow this to 90 percent. ITA contributed with a pro rata €-58 million result in HY1, compared to €84 million last year. The result includes negative currency effects and lease liabilities.
Guidance
CEO Carsten Spohr is optimistic about the current Q3, which traditionally is the strongest quarter. Reflecting on the results, Till Streichert said: “The second quarter was characterised by exceptionally high fuel costs and heightened geopolitical uncertainty. Nevertheless, thanks to robust demand, rising yields and the strong performance of Lufthansa Cargo, we were able to achieve a positive result. At the same time, our balance sheet remains consistently strong at €10.7 billion in liquidity. Even though uncertainties for the second half of the year remain high, we are confident that the consistent execution of our strategy, cost discipline, network optimisations and persistently high demand will offset a significant portion of the cost increases.”
Lufthansa Group has hedged fuel at 86 percent for the rest of the year, but the unhedged part will cost €700 million extra year-over-year. Volatile fuel prices and considerably shorter booking cycles in the passenger airline business make it difficult to offer guidance. Capacity will remain flat compared to 0.0 to 0.2 percent growth guided previously.
Streichert projects a full-year earnings range of €1.7 to €2.2 billion in Adjusted EBIT. “The upper end of this range therefore continues to represent a result significantly above the prior year.” This depends on fuel prices, demand, operational stability and a continued strong cargo demand. Lufthansa Group has a solid liquidity position, which remained unchanged in HY1 at €10.7 billion. Net debt was also flat at €8.3 billion.
CEO Carsten Spohr noted that new aircraft deliveries are still behind schedule. Instead of 45 aircraft, the group expects 41 this year. This includes the first Airbus A350-1000s.
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