Lufthansa's New Profit Warning: A Deep Dive
Facing significant financial challenges, German airline giant Lufthansa has issued a profit warning for 2024, cutting its expectations sharply due to a weak second quarter.
Published July 13, 2024 - 00:07am
German airline giant Lufthansa has taken a significant step back in its financial outlook after announcing a profit warning for 2024 following a weak second quarter. The company now forecasts an operating profit of 1.4 to 1.8 billion euros (1.5 to 1.9 billion USD), a steep decline from the previous estimate of around 2.2 billion euros.
This profit warning comes in the wake of several adverse factors that have conspired against the airline. Notably, Lufthansa's total operating profit for the second quarter was recorded at 686 million euros, a drastic fall from the 1.1 billion euros it recorded in the same period in the previous year. The primary contributors to this decline were described as a 'negative market trend' and operational inefficiencies in both Lufthansa and Cityline, compounded by delays in aircraft delivery.
Lufthansa Airlines, the flagship carrier of the group, has been particularly impacted. The airline's quarterly profit stood at 213 million euros, almost 300 million less compared to the previous year. Over the first half of 2024, Lufthansa Airlines reported a loss of 427 million euros, a stark contrast to the 149 million euros profit reported in the same period in the previous year.
The airline's challenges are multifaceted. A noteworthy observation is the market-related decline in yields across all traffic regions, especially in Asia. Furthermore, disruptions caused by strikes and delayed aircraft delivery have exacerbated the financial strain. The EBIT for Lufthansa Airlines fell significantly from the previous year's figure, underlining the gravity of the situation.
In response to these challenges, Lufthansa has launched a comprehensive turnaround program aimed at mitigating the financial downturn. The group remains cautiously optimistic about the performance of its other passenger airlines and business units such as Lufthansa Technik and Lufthansa Cargo, projecting earnings for these units to remain at or above the previous year's levels. The airline's other carriers, including Eurowings, Austrian Airlines, Swiss International Air Lines, and Brussels Airlines, are expected to perform relatively better in the second half of the year.
The adjusted EBIT for the full year of 2024, previously anticipated to match the 2.68 billion euros figure from 2023, has now been re-estimated to fall between 1.4 billion and 1.8 billion euros. This new outlook underscores the heavy reliance on the traditionally stronger fourth quarter for Lufthansa Cargo and the overall group's earnings development.
In addition to profit expectations, Lufthansa's free cash flow projection has also been revised downwards to significantly below 1 billion euros, from an earlier prediction of at least 1 billion euros. This adjustment reflects ongoing uncertainties regarding capital expenditure in the latter half of the year.
Investor confidence wavered following these announcements. Shares in Lufthansa dropped by 0.6% following the profit warning, indicating market concerns about the airline's ability to navigate the challenging financial landscape.
Lufthansa's Head of Investor Relations, Marc Nettesheim, highlighted the complexities of the current aviation market. Speaking about the financial outlook, he emphasized the critical nature of the upcoming fourth quarter for stabilizing the year's financial performance. The full details of the second-quarter results are slated for release on July 31, which will provide a clearer picture of the financial trajectory for the remainder of the year.
This situation places Lufthansa in a precarious position as it contends with multiple fronts of operational and financial pressure. The company's turnaround program will be crucial in addressing these challenges and steering the airline back towards profitability. As airlines worldwide grapple with market volatility, Lufthansa's experience underscores the broader difficulties faced by the aviation industry in a post-pandemic era.
Amidst these turbulent times, Lufthansa's strategic moves and the resulting financial performance will be closely watched by industry analysts and investors alike. The airline's ability to adapt and overcome current operational inefficiencies will be key determinants of its financial stability and future growth.