The first quarter results presented today by the Lufthansa Group are more than sobering. They confirm what had already been published in an ad hoc disclosure on the financial development
of the airline on 23APR20. Negative numbers, wherever one looks. However, the rescue plan just consented to by the EU Competition Commission, and totaling 9 billion euros, should prevent the
worst.

Meanwhile the German leftist party “Die Linke” (9.2% election result 2017) has demanded to merge railway company Deutsche Bahn with Lufthansa, to create a state-owned mobility
group.

Lufthansa suffered enormously under the Covid-19 induced decline in international aviation, as seen by the traffic results 01JAN20 – 30MAR20 unveiled today (03JUN20). The adjusted EBIT went south
1.2 billion euros, down 867 million euros y-o-y, eating up much of the liquidity reserves. Group revenue in the first quarter fell by 18% to 6.4 billion euros (previous year: 7.8 billion euros).
Net profit tumbled, amounting to minus 2.1 billion euros.
In total, the airlines belonging to the Lufthansa Group, (i.e. Swiss, Brussels Airlines, Austrian Airlines, Eurowings) carried 21.8 million passengers in the first three months, around a quarter
less than in the same quarter last year (- 26.1%). The seat load factor fell by 4.7% to 73.3% during this period. Freight capacity on offer fell by 15% and freight kilometers sold by 15.5%.

Cargo hit badly as well
The April figures were even more frightening. Freight supply was 60.7% lower than in the same month of 2019. This was predominantly caused by the lack of lower deck capacity due to the grounding
of 700 of the group’s total fleet of 763 passenger aircraft, taking a large chunk of belly capacity off the market that could not be compensated by converting some long-haul aircraft from
passenger to freighter configurations. Still in April, freight kilometers sold declined by 53.1% as result of the lack of belly hold capacity, conversely upping the load factor of the all-cargo
fleet by 11.5 percentage points, totaling 71.5% on average. However, much worse was the decline in passenger numbers that dipped by 98.1% – an unprecedented historical low. Simultaneously, supply
fell by 96.0%. The downward trend continued unabated in May, with passenger numbers and freight volumes again reaching new lows. On 31MAR20, the Lufthansa Group’s liquidity amounted to around 4.3
billion euros. “We have succeeded in reducing fixed costs by one third within a short period of time. Nevertheless, in our operating business, we are currently consuming around 800 million
euros of our liquidity reserve per month,” Thorsten Dirks, Member of the Executive Board Digital and Finance at Deutsche Lufthansa AG, described the bleak reality. He went on to say that
“in addition, the reimbursement of cancelled airline tickets and the repayment of financial liabilities that have fallen due will have a foreseeable negative impact on our liquidity
development.” These amount to an estimated 1.8 billion euros.

Many roads lead to Rome, pardon: Frankfurt
So what is CEO Carsten Spohr and his Executive Board’s strategy to get the Lufthansa Group members out of the doldrums and back on their feet? They announced a package of coordinated measures to
reduce current unit costs. Driving down fixed costs fast by short time working for roughly 87,000 staff is a key element of the restructuring plan, so is the cancellation of planned projects, and
the postponement of maintenance events. Brussels Airlines (SN) and Austrian Airlines (OS) are facing fleet adjustments, with SN losing 30% of its aircraft and 25% of its workforce, while OS’s
fleet will be downsized by 20%, as will jobs, consented to by the Vienna-based carrier’s working council meanwhile.
Further to this, negotiations with aircraft manufacturers on extensive postponements of planned aircraft takeovers are continuing. In addition, the sale of individual non-core business units is
being examined in the medium term. Which ones these might be has not yet been revealed by the Executive Board.

Step by step back to normal business
Touching the financial situation in the months ahead, Mr. Spohr pointed out that the corona pandemic makes it nearly impossible to deliver a precise forecast of the earnings trend for 2020. All
he said, is that the Lufthansa Group continues to expect a significant decline in Adjusted EBIT.
In their Tuesday meeting, the Lufthansa bosses decided to increase the offered capacity in September by up to 40% of the original schedule. At the same time, the number of destinations will
increase to 70% of the original plan for long-haul flights, and 90% for short-haul flights in order to offer customers the widest possible choice of destinations. The flight plans for this
step-by-step expansion, based on market development, will be worked out by the end of August. That said, the Lufthansa managers still expect 300 aircraft parked in 2021, and 200 in 2022. Even
after the end of the crisis, which is expected to end in 2023, they believe the fleet will remain 100 aircraft smaller compared to pre-Covid-19 times.

Bizarre concepts presented by Leftist
Simultaneously to the Executive Board’s Frankfurt gathering, party leader Bernd Riexinger of socialist party Die Linke (The Left) presented a paper, urging the merger of Deutsche Bahn and
Lufthansa and build a ‘mobility corporation’. This way, the service of different operators would make short-haul flights superfluous. “A convincing transport policy from a single source would
be enabled if Deutsche Bahn – which is already 100% state-owned – and Lufthansa are merged,” Riexinger announced. This would make it possible to better organize transitions in the context of
a traffic turnaround.
In their 5-page paper, Riexinger and his Leftists advocate further steps to making air traffic less attractive as a means of transport compared to trains: an extension on night flight bans with
airport closures between 10 p.m. to 6 a.m., and binding targets for greenhouse gas reductions.
The other parties sitting in the German Bundestag rejected the Riexinger merger proposal. “So why not nationalize all major companies and turn them into a uniform German corporation?”, a
member of the Christian Democrats reacted when asked by CargoForwarder Global. “If so, Germany would turn into a socialist state which not many people do want.”

Heiner Siegmund

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