LONDON – On Monday 15th April 2019, Lufthansa announced a black hole and we’re not just talking the baggage handling centre at Frankfurt; we are talking about the first quarter 2019 financial results.
Deutsche Lufthansa AG reported an EBIT of EUR -336 million, compared to EUR 52 million in the same period the previous year.
All arms of the Deutsche Lufthansa AG group reported losses, with the exception of LSG and Lufthansa Cargo. Eurowings saw its adjusted EBIT decline to EUR -257 against EUR -212 the previous year.
Lufthansa Cargo reported an EBIT of EUR 24 million down from EUR 67 million for the comparable period in 2018. LSG reported at EBIT of EUR 2 million up when compared to an EBIT EUR 1 million for the 2018 period. I never knew an airline cheese and ham panini was in such high demand.
At the end of 2017 German airline Air Berlin ceased to trade and Eurowings the low cost arm and Lufthansa mainline absorbed a large portion of the former carriers operations.
This led to increased competition especially in the regional market and on intra-European routes.
A decline in revenue was predicted when compared to the results of the previous year.
Citing over capacity in European markets and sharply rising fuel costs, there is also a considerable amount of uncertainty across the continent due to Brexit and various other pockets of political instability.
Ulrik Svensson, Chief Financial Officer of Deutsche Lufthansa AG said “We are seeing good booking levels for the quarter ahead, at the same time; we have substantially reduced our own capacity growth.”
“And with a reduction in growth also projected for the European market as a whole, we expect unit revenues to increase again in the second quarter. This should be further buoyed by the still-strong demand on our long-haul routes, especially to Asia and North America.”
Lufthansa is one of the last major European airlines offering a full service on intra-European flights.
Competing airlines such as British Airways, Ukraine International, Iberia and Aer Lingus for example have moved to a low cost model within Europe. Other airlines such as Swiss and Austrian have adopted a hybrid model.
We have to ask is the full service model sustainable within Europe, and with each moon that passes, I regret to say the answer is most likely to be no.
For Lufthansa, this is likely to be complicated as group member Eurowings leaves very little room for Lufthansa to move in terms of migrating to a low-cost model. I think there will be changes to the business model in the coming years, but where and how, remains more of mystery.