Lufthansa Group has lost 1.26 billion euros in the third quarter of 2020, whilst the group’s airlines carried only 20 (8.7 million) percent of the number of passengers carried during the same period of the previous year. The pandemic has had an enormous effect and the group will need more money in the future.
1. Financial losses
The global corona pandemic has continued to have a considerable impact on the Lufthansa Group’s earnings development in the third quarter, although losses were reduced compared to the second quarter due to substantial cost savings and an expansion of the flight schedule in the summer months of July and August. Adjusted earnings amounted to minus EUR 1.3 billion against the previous years plus EUR 1.3 billion. In the same period, sales fell to EUR 2.7 billion against the previous years EUR 10.1 billion, whilst the net income was minus EUR 2 billion against the previous years plus EUR 1.2 billion.
2. Reducing costs
Operating expenses were however cut by 43% in the third quarter compared to the previous year, partly as a result of significantly lower fuel costs, fees and a reduction in other costs that vary based on the extent of flight operations. Carsten Spohr, CEO of Deutsche Lufthansa AG, stated, ‘Strict cost savings and the expansion of our flight program enabled us to significantly reduce the operating cash drain in the third quarter, compared to the previous quarter. Lufthansa Cargo also contributed to this with a strong performance and a positive result of EUR 169 million. We are determined to keep following this path. We want to return to a positive operating cash flow in the course of the coming year. In order to achieve this, we are advancing restructuring programs throughout the Group with the aim to make the Lufthansa Group sustainably more efficient in all areas’.
3. Adjustments according to the market
In the upcoming winter months, demand for air travel is expected to remain low due to the global increase of infection rates and the associated travel restrictions. The airlines of the Lufthansa Group will therefore be adjusting their original planning and will offer a maximum of 25 percent of last year’s capacity from October to December. This consistent capacity reduction will ensure that flight operations continue to make a positive contribution to earnings. In order to adjust to the long-term changes in the market, the Lufthansa Group is implementing extensive restructuring measures in all business units. In the fourth quarter, the Group expects this to result in non-cash one time and restructuring expenses. Their amount depends primarily on the further progress of negotiations with the social partners.
4. The future
Lufthansa Group remains on track for returning to a positive operating cash flow during the course of 2021. The prerequisite for this is that the pandemic situation allows for an increase in capacity to around 50% of pre-crisis levels. Carsten Spohr stated, ‘People around the world have a great desire to travel again soon. Together with our partners, we are ready and will do everything we can to fulfil this desire as quickly as possible and with the highest health and safety standards. The important thing now is to ensure health protection and freedom of travel, for example by means of widespread rapid tests’. He added, ‘We are now at the beginning of a winter that will be hard and challenging for our industry. We are determined to use the inevitable restructuring to further expand our relative competitive advantage. We aspire to remain the leading European airline group following the end of the crisis’.
