Deutsche Lufthansa AG, one of Europe’s leading airline groups, has expressed optimism about its financial performance for the current year and beyond as strong travel demand continues to drive their earnings, Bloomberg reported on Thursday.
The company reported that the strong travel demand experienced during the summer season has extended into the slower final months, with leisure travellers increasingly choosing more expensive seats.
According to a statement released on Thursday, Lufthansa expects its adjusted operating profit to exceed €2.6 billion ($2.8 billion) this year, surpassing analyst estimates. Furthermore, the company anticipates achieving its earnings margin target of at least 8 per cent by 2024.
Lufthansa highlighted the strength of Christmas season bookings and the ongoing trend of passengers upgrading to first and business class. While the cargo division’s earnings dipped to just €1 million in the quarter due to an economic slowdown, overall ticket yields in its airline businesses remained 25 per cent higher than pre-pandemic levels, which significantly boosted their profit.
Bloomberg quoted Lufthansa’s CEO, Carsten Spohr, as saying, “Even though the geopolitical situation remains challenging, our booking outlook gives us reason to be positive – not only for a very good group result this year but also beyond.” The company’s strong performance is attributed to the sustained high demand for air travel, which has allowed them to recover from the financial impact of the COVID-19 pandemic.
However, concerns are emerging about the future of air travel demand, as households grapple with rising inflation, increased interest rates, and geopolitical tensions, particularly in the Middle East. There have been signs that some travellers are starting to avoid bookings to nearby destinations due to these concerns.
Notably, Lufthansa has achieved an operating margin of 8.5 per cent so far this year, doubling the figure from the same period last year, which sets the company on course to achieve its long-term profitability goals by 2024.
Lufthansa’s European competitors, British Airways’ parent company IAG SA and Air France-KLM, also reported record third-quarter operating profits recently, driven by high demand for summer travel, particularly between Europe and North America. These airlines, however, expressed concerns about the impact of the ongoing conflict between Hamas and Israel on travel to the Middle East, with indications that some travellers are becoming more cautious.
Despite the positive outlook, Lufthansa is mindful of potential geopolitical and macroeconomic risks. The company has stated its commitment to preserving maximum flexibility to adapt its plans if necessary.
Lufthansa continues to expand, as it recently announced plans to hire an additional 2,000 pilots. Moreover, the company is considering an order of 40 regional aircraft, with a decision pending between the Airbus A220s or Embraer E2s, as well as another 40 Airbus A320neos.
In addition, Lufthansa reiterated its intention to seek approval from the European Commission to acquire a 41 per cent stake in Italy’s ITA Airways by early 2024, a process that has faced regulatory scrutiny. The company is also in discussions regarding the potential sale of a stake in its Lufthansa Technik maintenance division and expects to make a decision on whether to proceed by the end of the year.
A technical issue was also revealed by Lufthansa, affecting 64 of its A320neos due to problems with their Pratt and Whitney engines. As a result, around 20 aircraft will be unavailable on any given day in 2024. Pratt, which is owned by RTX Corp., has acknowledged that approximately 3,000 jet engines worldwide require inspections due to potentially flawed components made with contaminated metal powder. This issue is expected to ground hundreds of A320neo aircraft over the next three years, with repair times ranging from 250 to 300 days.
(With inputs from Bloomberg)