Cargo carries Lufthansa Group to 1st profit since pandemic

A line of Lufthansa aircraft, close up of blue tails.

Record results by the cargo division pulled Deutsche Lufthansa AG to profit in the second quarter for the first time since the COVID crisis began, underscoring how moving goods has become increasingly important for passenger airlines as a hedge against travel downturns.

“The Lufthansa Group is back in the black,” CEO Carsten Spohr declared in a partial earnings release this week that showed a 393 million-euro ($399.6 million) operating profit.

Lufthansa Cargo, which operates 11 Boeing 777 freighters and controls four more in the AeroLogic joint venture with DHL Express, increased operating income by 48% to $490.1 million year over year. The unit achieved record first-half adjusted earnings before interest and taxes of $993.5 million, a 52% jump from a year ago.

Most passenger airlines don’t have freighter fleets or single out cargo profits.

The results are impressive considering how the closure of Russian airspace in response to Western sanctions over the Ukraine invasion effectively reduced Lufthansa’s cargo capacity and extensive lockdowns in Chinese cities like Shanghai sharply reduced carriers’ flight activity to a major market.

Lufthansa Cargo is the 15th-largest cargo carrier in the world. This spring it also began using two Airbus A321 converted freighters, a new type of narrowbody aircraft operated by short-haul sister company Lufthansa Cityline. The cargo airline also manages booking and handling for shipments carried in the parent company’s vast global passenger network, as well as by Lufthansa subsidiaries Austrian Airlines, Brussels Airlines and Eurowings Discover.

Absent the sizable cash flow generated by the cargo division, Lufthansa (DXE: LHA) would have lost money in the second quarter, following last year’s negative adjusted earnings before interest and taxes of $841 million for the period.

Net income increased significantly to $264 million compared to last year’s loss of $769 million.

Total revenue nearly tripled to $8.6 billion as passenger traffic has roared back with the lifting of cross-border COVID restrictions. Lufthansa has steadily added flights and was at 74% of pre-pandemic seat capacity at the end of June.

Group airlines continue to see high ticket demand through the end of the year, with forward bookings running at 83% of the pre-crisis level. The company said passenger capacity will be at 80% of 2019 levels in the third quarter.

Tight cost discipline reduced unit costs at the passenger airlines by 33% compared with the same period last year, but they remain 8.5% above the pre-crisis level due to inefficiencies from not operating the full fleet.

Subsidiary Swiss International Air Lines returned to profit in the first half behind substantial travel demand and a restructuring during the pandemic. Austrian Airlines also eked out a small operating profit.

The busy summer travel season has come with more hurdles for Lufthansa Group, including extensive congestion in Frankfurt, Germany, and other cities, attributed to airport staffing shortages that led to flight cancellations, delays and schedule cutbacks to stabilize operations.

A one-day strike by Lufthansa Airlines ground workers in Frankfurt last week caused hundreds of flight cancellations, which impacted some cargo movements, too. Lufthansa announced Thursday it had reached agreement with ver.di, the union representing 20,000 ground staff, on a contract that significantly increases wages, especially for those in lower salary brackets.

On Sunday, Lufthansa pilots approved going on strike if union officials aren’t satisfied with progress on a new contract, according to Reuters.

“This is a strong result after a half-year that was challenging for our guests but also for our employees,” said Spohr. “Worldwide, the airline industry reached its operational limits. Nevertheless, we are optimistic about the future. Together, we have steered our company through the pandemic and thus through the most severe financial crisis in our history. Now we must continue to stabilize our flight operations.”

Lufthansa said it will hire about 5,000 new employees in the second half as part of its recovery plan.

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Source: freightwaves - Cargo carries Lufthansa Group to 1st profit since pandemic
Editor: Eric Kulisch