Lufthansa Group Reports Loss For First Half Of 2019

Filed Under: Lufthansa

It’s an interesting time for aviation. In many ways you’d assume it’s still “the best of times,” as it seems like airlines are mostly doing pretty well. Yes, there’s a lot of competition, but globally things are looking fairly good — the economy is pretty good for the most part (at least many of us assume it will eventually get worse rather than better), and chances are that taxes on aviation are only going to get worse over time.

So it has been fun to watch how different airlines have performed. Some airlines have been reporting record profits, while other airlines have been reporting losses.

Lufthansa Group’s first half 2019 results

Lufthansa Group (the parent company of Lufthansa, Swiss, Austrian, Eurowings, etc.) has just reported their results for the first half of 2019, and they’re brutal.

The title of the press release highlights how Lufthansa Group achieved an Adjusted EBIT of EUR 754 million in the second quarter, which sounds great.

But to me the much more interesting statistic is that Lufthansa Group reported a net loss of EUR 116 million for the first half of the year, compared to a prior year profit of EUR 713 million over the same period. Ouch.

It’s reported that they did well with their long haul operations, particularly to North America and Asia. However, on short haul routes the price wars in Germany and Austria have had a negative impact on earnings.

For the first half of 2019:

  • The higher price of jet fuel added just under EUR 450 million to costs across the company
  • Lufthansa had to reevaluate tax risk in Germany, for which provisions of EUR 340 million were required

As Lufthansa Chief Financial Officer explains:

“Our earnings are feeling the effects of tough competition in Europe and sizeable overcapacities, especially on our short-haul routes out of Germany and Austria. We are responding to this by further reducing our costs and increasing our flexibility. And with the turnaround plan which we recently presented, we also intend to make Eurowings a sustainably profitable airline.”

The breakdown here between network airlines and Eurowings is fascinating.

Eurowings brings the losses…

Looking at the network airlines (Lufthansa, Swiss, and Austrian) for the first half of 2019:

  • The adjusted EBIT was EUR 565 million, compared to EUR 989 million during the same period the previous year
  • The adjusted EBIT margin amounted to 5.1%, compared to 9.3% during the same period the previous year
  • Total capacity was expanded by 4.9%, and seat load factor rose by 0.9%
  • Unit revenues were down 3.2% compared to the previous year

None of that sounds amazing, though it also doesn’t sounds terrible. But then you look at the results from Eurowings (which is Lufthansa’s low cost carrier that they’re restructuring):

  • The adjusted EBIT was EUR -273 million, compared to EUR -220 million during the same period the previous year
  • Total capacity was expanded 3.8%, and seat load factor rose by 0.9% to 80.7%
  • Yields on short and medium haul routes saw substantial declines, with unit revenue being 5% below levels the year prior

Bottom line

It was a rough first half of the year for Lufthansa Group. While performance worsened throughout the group, Eurowings performed worst and largely led to these losses.

Obviously there’s a ton of competition in Europe, and ultra low cost carriers have expanded significantly in Lufthansa’s markets in the past year. It’s clear they’re not capable of competing directly with them, though it seems like they need to change up their strategy for competing.

No wonder that Lufthansa’s CEO claims that it’s “irresponsible” to sell flights for $11

Comments
  1. Eurowings clearly can’t compete with Ryanair, Easyjet and the other LCC’s of Europe. Their costs are higher and their strategy is all over the place. I wonder how much longer it will take LH to figure that out. It is vanity or ego that makes them unable to accept this reality?

  2. You would think that after how many failed attempts by other legacy carriers to try and launch LCC airlines that Lufthansa would have known better? The highway is littered with their remnants. They need to abandon Eurowings and focus on their core business…long-haul and feeder traffic to those fights. It really is otherwise the definition of insanity.

  3. Eurowings was actually one of my favorite lower cost carriers before the flopped Air Berlín acquisition made them so unreliable.

  4. Pretty hilarious to read “armchair experts on Aviation” sharing their thoughts on how legacy carriers “should” run their business. Why aren’t you guys applying for the CEO job to help these airlines.

  5. Eurowings has been a basket case for years… Cranky Flier has an excellent series of articles on this. They’ve become a dumping ground for LH to throw any random bits of the business that don’t fit with the network airlines, while lacking any apparent strategy or vision.

    Lufthansa Group has already announced a restructuring of Eurowings (and thankfully reversed the odd decision to fold Brussels Airlines into Eurowings), but it looks like that will have to be much more radical now…. in general the whole group has been feeling somewhat directionless for a while, and maybe needs a shake up.

  6. Stuart is right. Stanley isn’t. As Jeff Bezos always says you have to be 100% customer centric and Lufthansa keeps on thinking what’s convenient for them rather than their customers. Star Alliance and Lufthansa frequent flyers have more reasons not to fly Eurowings than to fly the airline. They know the airline is part of Lufthansa group but in most cases can’t even access the lounges anymore or get better treatment. So essentially they frequent flyers and make them want to take their business elsewhere (which is Easyjet). Lufthansa has managed to loose almost the entire Berlin market to Easyjet and Ryanair because they arrogantly assumed they had a captive audience that would still fly Eurowings regardless of how they degraded service. Berlin isn’t just a city airport but if you hop on a United flight out of TXL will notice people from Poland and other parts of the region are on that plane. If they have any brains they will give up trying to be an LCC, kill Eurowings (which is like United’s “Ted” experiment), and sign deals with Easyjet, etc for interlining and feed traffic to their many international routes.

  7. The German economy is also struggling more this less year with business confidence at a7 year low, partly due to the drop in Chinese demand, political stasis, trade wars and Brexit.

  8. Ryanair has today also announced profit drops of 21% compared to the equivalent period last year. CEO Michael O’Leary blamed the B737Max issues, brexit uncertainities and the overcapacity. Over 400 pilots will be fired and over 500 crew. Yea, indeed European airlines aren’t what they seemed to be just about an year ago.

    Eurowings expanded way too fast but what was Lufthansa to do, sit there and watch Ryanair, Easyjet and Wizzair snatch its market share without even lifting a finger? They were either going to try and be successful or not. Sitting and waiting clearly was never an option.
    EW is actually a good airline on short haul routes like to Spain. I liked flying them.

    But indeed the overcapacity is some markets is astounding. Look no further than the MUC-BER (TXL,SXF) route. Lufthansa, Easyjet and Eurowings are duking it out and i think i don’t think any of them is winning. There’s hardly a huge price difference between the Easyjet & LH group.

    I expect capacity cuts on many routes.

    Oh and LH announced changes to Eurowings long haul, it seems the LCC is going to look like something of a Full Service carrier. EW flights long haul flights from Frankurt are now labelled as Lufthansa operated by Sunexpress for Eurowings………. 23kgs of checked luggage and meal on board are included just as would be on LH.

  9. If not mistaken, I think Stanley’s grandfather was Joseph Goebbels. If you want more evidence about what an incestuous group of “incompetent also-ran business failures” airline CEOs are, take a look at this link, recently some “trade group” that’s just a front group for the airlines awarded the LH CEO with Exec of the Year Award. Please. Maybe next year Doug Parker will win the award. Unless they have a category for most-wasted-liver in which case Doug will win that and then maybe the LH CEO will win again. https://www.flightglobal.com/news/articles/all-the-winners-from-the-2019-airline-strategy-award-459648/

  10. @Kim
    As bad as Doug Parker is, he deserves more credit.

    He is hated by flyers loved by investors. Unlike LH that have problems making money, Doug is doing much better. Wall Street loves Doug, EXP hates Doug.

  11. When they charge $11k for first class from LAX, no wonder they’re at a financial loss, no one’s gonna pay that. they should lower prices to stay competitive.

  12. Adding to the wows of LH as mentioned above is the elephant in the room~ recession. The German economy is not doing well and is heading towards recession for a few quarters at least. Of course the first thing to be affected is discretionary purchases, and travel of all kinds head this list. Airline execs worldwide should take note, as recession spreads faster than the common cold, and can be at one’s doorstep before you know it.
    I would not be confident in the least that the current crop of dim-witted CEOs running the major US airlines would have the nous to successfully handle the recession when it comes knocking in 2020.

  13. I am a German frequent flyer.

    From customer (subjectiv) customer experience it is quite simple to explain. Eurowings is getting more and more unreliable. I feel one of three flights is massively delayed or canceled, cost cutting measures everywhere and a comparable good competition e.g. EasyJet on DUS – TXL is much more reliable. Most of the frequent flyers I know prefer EasyJet over Eurowings for domestic flights

  14. Eskimo
    I’ll send you a subscription to the WSJ, you need it. AA is not doing well. Doug is not liked by Wall Street, except for the investment bankers looking for a drinking buddy. If you extract AA credit card fee revenue from co-branded cards out of their earnings, they are LOSING money. So basically it’s a credit card marketing company that has a money losing subsidiary that flies planes. Doug has had to put his own money into buying the stock b/c Wall Street was so pissed, and if you do a 3 year stock chart of every US airline, their stock return lags them all. So no, you must have him confused with the CEO of an “actually good” company.

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