MIAMI – The Lufthansa Group (LH) has released its financial results for the Q1 2020, posting a net loss of €2.1bn. The news comes as no surprise after the aviation industry has been in turmoil due to the COVID-19 pandemic.
“Global air traffic has come to a virtual standstill in recent months. This has impacted our quarterly results to an unprecedented extent. In view of the very slow recovery in demand, we must now take far-reaching restructuring measures to counteract this,” said Carsten Spohr, Chairman of the Executive Board of Deutsche Lufthansa AG.
Strict travel restrictions globally have severely impacted Lufthansa Group’s income, with an 18% fall compared to last year, down to €6.4bn from €7.8 bn.
The Lufthansa Group could not fully combat the decline in revenue; its adjusted EBIT loss for Q1 2020 is €1.2bn, with a net loss of €2.1bn.
The Group carried just over 25% fewer passengers when compared to the same period last year. Its offered freight capacity fell by 15% due to the lack of passenger flights, and the supply was 60.7% lower than April 2019 due to the lack of passenger flights.
However, while freight kilometers sold were down by 53.1%, the cargo load factor rose by 71.5%
In all, LH reported a 98.1% year-on-year drop in passenger numbers to 241,000, with supply decreasing by 96%.
Generating funds and reducing costs
The Group previously reported that a state support package had secured the future of the company, allowing it to get to the stage to generate funds from its operation.
“We have succeeded in reducing fixed costs by one third within a short period of time. Nevertheless, in our operating business we are currently consuming around 800 million euros of our liquidity reserve per month,” said Thorsten Dirks, Member of the Executive Board Digital and Finance at Deutsche Lufthansa AG.
“In addition, the reimbursement of canceled airline tickets and the repayment of financial liabilities that have fallen due will have a foreseeable negative impact on our liquidity development,” added Dirks.
The Group intends to reduce costs significantly compared to pre-COVID-19 levels. Fixed costs will be reduced via short-time working for approximately 87000 employees. Project delays have also been introduced, with some outright cancelations.
Mr. Dirks said, “In order to repay the loans and coupons quickly, we will have to significantly increase our annual free cash flow compared to pre-crisis levels – even though global demand for flights will remain below pre-crisis levels for years to come.”
“This will only succeed if we implement restructuring programs in all areas of the Group and agree on innovative solutions with the unions and working councils,” added the executive.
Austrian Airlines (OS) and Brussels Airlines (SN) already had restructuring programs ongoing; these are now enhanced compared to before. SN intends to make a 30% fleet reduction and a 25% workforce cut. OS’ cuts are slightly smaller, with both workforce and fleet cuts by 20%.
The Lufthansa Group is also negotiating with aircraft manufacturers to delay deliveries of new aircraft currently planned. Alongside this, it is looking at selling non-core business units in the medium term and restructuring other Lufthansa Group companies.
A gradual return to operations
April and May saw the Group airlines park 700 of its 763 aircraft. These aircraft are now slowly starting to return to operations.
From mid-June, the Group’s airlines will begin to expand their network to around 2000 weekly routes and over 130 destinations while the expansion of route networks will continue to rise over time, with 70% of planned long-haul and 90% of scheduled short-haul flights slated for September.
The Group is cautious in the expansion, however. It expects to still have 300 aircraft on the ground in 2021, and 200 in 2022. With the current crisis expected to end in 2023, The Group expects to be down 100 aircraft for its regular operation.
“Even in this unique crisis we are working hard to defend our leading position in Europe,” said Carsten Spohr.
Thinking ahead, Lufthansa Group’s airlines have put procedures in place for the inevitable rising of demand in air travel.
These include extensive hygiene measures and everyone on an aircraft will be required to wear a mask. The airlines are also operating numerous rebooking options, and call center capacity scaled up to cope with demand from customers canceling their flights, speeding up refunds.
Ultimately, the Lufthansa Group has admitted that due to the COVID-19 pandemic, it is impossible to predict its financial performance throughout 2020. It does, however, expect to see a significant decline over the year.