Labor actions drag Lufthansa Cargo to first-quarter loss

The cargo subsidiary of Lufthansa Group had an adjusted operating loss of $23.5 million in the first quarter, down from $166 million in the same 2023 period as strikes by cabin and ground staff negatively impacted performance.

The company also attributed the loss to inflation and a challenging market environment, although in reality conditions for cargo carriers are improving as evidenced by 11% demand growth and rising rates during the quarter. The industry growth looks better against a weak first quarter in 2023.

Excluding flight cancellations related to strikes, Lufthansa Cargo would have generated a marginal operating profit of $3.3 million, the company said.

Lufthansa Cargo’s core transportation revenue fell 17% y/y to $706 million, on par with competitors such as Air France-KLM (-16.5%), American Airlines (-15%) and Delta Air Lines (-16%). United Airlines was the best first-quarter performer, with cargo revenue dipping 1.8% to $391 million, more than double the revenue of its U.S. peers. Avianca, a smaller airline in South America, said cargo revenue decreased 8.3%. Most airlines don’t break out profit for cargo in their income statements the way Lufthansa does.

On a positive note, the rate of revenue decline for Lufthansa (DE: LHA) and other cargo carriers is slowing as the market normalizes following a 16-month downcycle. In 2023, cargo revenue fell 37% y/y.

Lufthansa Cargo is the 16th-largest cargo airline in the world by shipping activity. It operates 11 Boeing 777 cargo jets and four Airbus A321 converted freighters for regional service. An additional six aircraft are chartered from AeroLogic, a joint venture with DHL, and operated by AeroLogic on behalf of Lufthansa Cargo. Lufthansa Cargo also manages the belly cargo for Lufthansa and all sister airlines besides Swiss International.

The freighter operator’s revenue decline was a function of 25% lower yields, as sales volume charged by distance increased 10%. Operating expenses increased 5% because of rising staff costs associated with wage and salary increases, as well as higher depreciation.

Overall, Lufthansa Group reported an adjusted operating loss of $935 million, including a $350 million impact from the work stoppages by its own workers or those employed by certain airports that resulted in the cancellation of 6% of total planned flights. Growth was slower than expected because of delayed aircraft, seats and engines from suppliers and unplanned engine overhauls, management said. 

In response to supplier problems, Lufthansa will only increase available capacity in the second quarter to 92% of pre-COVID levels, down from a planned level of 94%. Most of the workforce is now covered by long-term collective bargaining agreements that have raised labor costs. Management said it will address that financial challenge by seeking significant productivity gains in the coming years, including a freeze on investment in new projects and hiring administrative staff.

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