Germany’s Lufthansa Group Expects 2023 To Be Among Most Profitable

Frankfurt — Just three years after requiring government bailouts to survive the coronavirus pandemic, German airline Lufthansa is heading for one of the most lucrative years in its history after a record result in the second quarter.

Lufthansa's second-quarter results, which were announced on Thursday, point toward at least the third-highest annual profit in the group's history, according to chief executive Carsten Spohr.

Tense labour negotiations with pilots at the flagship Lufthansa and Lufthansa Cargo airlines might cloud the remainder of the year.

Pilots began voting on Thursday on whether to accept Lufthansa's latest contract offer, with strikes a possibility if less than half of pilots approve the deal.

But booming profits pointed to the reversal of fortune for the Lufthansa Group, which was rescued from bankruptcy in 2020 with €9 billion ($9.8 billion) in state aid from Germany, Austria, Switzerland and Belgium. The company fully repaid the aid by the end of 2022.

In addition to its flagship Lufthansa airline, the Lufthansa Group also includes Austrian Airlines, Brussels Airlines, Swiss and budget carrier Eurowings, along with several other subsidiaries.

The company announced on Thursday that adjusted earnings before interest, taxes (EBIT) should reach at least €2.6 billion ($2.8 billion) in 2023, the company announced on Thursday.

The updated forecast for 2023 lag behind only Lufthansa's record 2017 (€3 billion) and 2018 (€2.8 billion), when the group's airlines were riding high after the bankruptcy of budget rival Air Berlin.

Spohr, the chief executive, said he does not foresee any price cuts despite the company's surging profits. The airline industry's costs for personnel, fees and services are high and will continue rising.

Spohr said billions in losses during the pandemic still need to be made up. He said the Lufthansa Group is currently making only €15 in profit per passenger.

"I would say the taxi driver who took me to the airport in Munich this morning earned more on the trip," Spohr said.

Demand will continue to increase even after the summer, the Lufthansa boss said: "We don't see any break in our advance bookings."

In addition, business with China and with business travellers is now bouncing back after lagging following the coronavirus pandemic. Spohr said Lufthansa is also planning additional connections to India in light of booming business interest in the Indian market.

Spohr said he expects only demand for domestic business travel within Germany to remain permanently below pre-pandemic levels.

However, due to bottlenecks in European air traffic, flight capacity this year is only expected to reach about 85% of the level from the last complete pre-pandemic year of 2019. Previously, Spohr had targeted 85% to 90%.

In addition, Spohr said delayed deliveries of aircraft and spare parts are complicating operations.

For the coming year, the Lufthansa boss said the company would take a stricter look at costs after focusing during the current year on stabilizing operations.

Crews will have to fly more and aircraft will be deployed more frequently and more efficiently, Spohr said.

About 5,200 pilots at Lufthansa and Lufthansa Cargo are currently voting on a contract offer that would provide pay raises of between 25% and 50% over a five-year period.

The bargaining committee from the labour union Vereinigung Cockpit (VC) did not explicitly endorse the contract offer from Lufthansa - but indicated that no better result could be achieved through collective bargaining.

The offer from Lufthansa also includes concessions on working and on-call times, the abolition of a second pay scale for new hires that was introduced years ago and would also address the status of about 150 captains from the defunct Lufthansa budget subsidiary Germanwings.

A brief strike by pilots in September during collective bargaining talks paralysed flight operations at Lufthansa.

In the second quarter, Lufthansa increased its revenue by 17% year-on-year to just under €9.4 billion thanks to more passengers and higher ticket prices. The adjusted operating profit almost tripled to just under €1.1 billion and was thus higher than ever before in a second quarter.

Last year, Lufthansa earned around €1.5 billion in its day-to-day business.

The bottom line was a profit of €881 million, three and a half times as much as a year earlier.

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