Lufthansa’s Earnings Call: Mixed Sentiments with Strategic Wins

Deutsche Lufthansa AG ((DLAKY)) has held its Q4 earnings call. Read on for the main highlights of the call.

The recent earnings call for Deutsche Lufthansa AG painted a picture of mixed sentiments. On one hand, the company celebrated a robust performance in Q4, marked by significant achievements like the acquisition of ITA Airways and record-breaking revenues. On the other hand, these successes were tempered by challenges faced by Lufthansa Airline, including high irregularity costs and operational issues. While other airlines in the group showed positive outcomes, the core brand’s struggles and rising costs present a balanced outlook for the company.

Strong Q4 Performance

Lufthansa reported a strong Q4 performance with an adjusted EBIT of €468 million, surpassing the previous year’s results by €66 million. This improvement underscores the company’s ability to navigate through a challenging economic environment and capitalize on growth opportunities.

ITA Airways Acquisition

In a strategic move, Lufthansa completed the acquisition of a 41% stake in ITA Airways, marking the largest airline acquisition in its history. This acquisition is expected to enhance Lufthansa’s market position and expand its operational footprint.

Record Revenue Achievement

The company achieved record revenues, increasing by 6% to €37.6 billion. This milestone was marked by over €10 billion in revenue for two consecutive quarters, highlighting the strong demand in the aviation market.

High Load Factors

Passenger Airlines expanded capacity by 9%, achieving record load factors peaking above 90%. This indicates a strong demand for air travel and effective capacity management by Lufthansa.

SWISS and Other Airlines’ Performance

SWISS, a part of the Lufthansa Group, achieved an impressive adjusted EBIT of €800 million. Other airlines like Eurowings and Brussels Airlines also contributed positively, showcasing the group’s diversified strength.

Lufthansa Technik Success

Lufthansa Technik reported a new high in EBIT, reaching €635 million, bolstered by significant new customer contracts. This success reflects the division’s strong market position and operational efficiency.

Lufthansa Cargo Performance

The cargo division achieved adjusted earnings of €251 million, with €199 million generated in Q4 alone. This performance underscores the division’s critical role in the group’s overall profitability.

Core Brand Struggles

Despite the successes, Lufthansa Airline faced significant challenges, with a €950 million decline in adjusted EBIT. This highlights the urgent need for an economic turnaround within the core brand.

High Irregularity Costs

Irregularity costs surged to over €840 million, a 70% increase, driven by strikes and operational instability. This rise in costs poses a significant challenge to the company’s profitability.

Operational Challenges

Operational instability, attributed to older aircraft and capacity limitations at system partners, led to increased irregularity costs and lower productivity. Addressing these issues is crucial for future stability.

Cost Increases

Operating costs rose by 9%, influenced by higher cost inflation, MRO costs, and an 8% increase in staff costs. Managing these rising costs remains a priority for Lufthansa.

Regional Disadvantages

Lufthansa faces significant disadvantages in the Asian market due to the inability to use Russian airspace, affecting its long-range competitiveness. This regional challenge requires strategic adjustments to maintain market presence.

Forward-Looking Guidance

Looking ahead, Lufthansa anticipates a challenging fiscal year 2024, with a decline in adjusted EBIT of €974 million in the first half, largely due to strikes costing €450 million. However, the second half is expected to show significant improvement, culminating in a strong Q4. The company forecasts double-digit growth in adjusted EBIT for 2025, despite headwinds such as inflation and operational costs. Strategic expansion, including the ITA Airways acquisition, and a focus on operational stability are expected to support this growth.

In conclusion, Deutsche Lufthansa AG’s earnings call revealed a mixed sentiment, balancing strong achievements with notable challenges. While the company celebrated record revenues and strategic acquisitions, it also faced significant hurdles with its core brand and rising costs. Looking forward, Lufthansa remains optimistic about future growth, driven by strategic expansions and a focus on operational stability.