Lufthansa expects a challenging summer

style="float: right; margin-bottom: 10px; font-weight: 600;"Thu 4th Mar, 2021

The Lufthansa Group is relying on the desire to travel after months in lockdown for the first step out of the crisis. The unfavorable thing about this, however, is that other airlines are likely to come up with exactly the same idea - especially since a rapid recovery in traffic with business travelers is not to be expected. "In the summer, there will be an oversupply on tourist routes," is already a foregone conclusion within the Group.

Nevertheless, there is a push. "We are prepared to offer up to 70 percent of our pre-crisis capacity again at short notice if demand increases," announces Lufthansa CEO Carsten Spohr. Flying in the price war is still better than leaving the business to others.

The Group needs flight operations to be able to generate its own surpluses. According to internal calculations, a positive cash inflow is possible if the capacity offered is above 50 percent of the pre-crisis level. After the near standstill in the first quarter, a capacity of 40 to 50 percent compared to 2019 is still considered achievable for the full year.

Most challenging year in the Group's history
The Group is moving from the doldrums into the competitive storm, with a 6.7 billion euro loss incurred by Lufthansa in 2020. It was the "most challenging year in the history of our company," Spohr says. A year earlier, the bottom line was still a surplus of 1.2 billion euros. Sales fell from 36.4 billion euros to 13.6 billion euros. There were still 36 million passengers boarding, 75 percent fewer than in 2019.

The task now is to avoid getting caught in the maelstrom of a price war. Lufthansa wants to avoid this by remaining flexible in the planning of flight offerings on vacation routes in order to react at short notice. This is already fueling concerns that vacationers will be faced with a flood of flight time changes, as was the case a few years ago, when poorly utilized flights could be canceled and merged at short notice.

Vacation flight plans under fire
It's not supposed to be that bad. Lufthansa is preparing for the fact that vacationers will be booking at very short notice in 2021. And that's also how the flight schedules are being arranged. Not all connections have been bindingly fixed for May yet, let alone for the major vacations. But in the holidaymaker business, making big money has always been more difficult. Before the crisis, about 29 percent of Lufthansa passengers were business travelers, who paid higher prices and accounted for almost 44 percent of ticket sales.

In addition, the Group's vacation flight schedules are under fire. The Vereinigung Cockpit pilots' union sees the new Eurowings Discover platform as a vehicle for fare evasion. Rival Condor has filed a complaint with the German Federal Cartel Office, accusing Lufthansa of abusing its market power. Lufthansa has terminated a long-standing agreement that secured Condor good conditions on domestic feeder flights to its own long-haul services from Frankfurt. Now the smaller rival sees an attempt to be undercut on price in the competition between the two state-backed airlines.

Lufthansa executives feel that the excitement is exaggerated beyond measure. The Eurowings-Discover operation will consist of only seven aircraft, at least in 2021, they say. Condor is said to have enough strength of its own to stand up to it. After all, its smaller rival has also received state aid. If this is converted to the number of employees, Lufthansa would have had to receive almost twice the allocated aid package to achieve identical per capita support.

Criticism of quarantine obligations
Travel restrictions are also still standing in the way of the big vacation rush. "From the summer onwards, we expect demand to pick up again as soon as the restrictive travel restrictions are reduced by a further spread of tests and vaccines," says Spohr.

However, the fall of the restrictions has long since been taken into account. The pressure from countries with a large share of tourism in southern Europe is likely to become so great by the summer vacations that other EU countries will hardly insist on isolation or vaccination as requirements, but will make tests an essential requirement. Currently, very few passengers are arriving. Most recently, the number of travelers in a week was only 9 percent of the pre-crisis comparison value from the previous year. However, since 13 percent of the flight capacity existed, it is obvious that more seats remained empty despite the sharp cuts. Particularly on intercontinental flights, a special sense of privacy among travelers is heard to arise when there are only 20 or 30 passengers on board.

Lufthansa flies anyway, but not as a friendly gesture for the few who have to get to their destination. The cargo hold on the lower deck is well filled. Spohr does not intend to rely on the opportunities offered by the cargo business alone for too much longer. Passenger capacity is to be expanded as early as the flight schedule change at the end of the month. In the short-haul segment in particular, an increase of 50 percent is targeted.

Business customers still missing out
"Now, internationally recognized, digital proof of vaccination and testing must take the place of travel bans and quarantine so that people can once again visit family and friends, meet business partners or get to know other countries and cultures," says Spohr. From the group's point of view, it is a nuisance that for travelers, returning from areas classified as risk areas due to an incidence of more than 50 new infections per 100,000 inhabitants within seven days, leads directly to quarantine.

The day before, business travel association VDR reported that 77 percent of travel managers at German companies see requirements such as quarantines as a barrier to business travel. "Until this changes, many companies will not resume travel," said VDR President Christoph Carnier.In restarting operations, Lufthansa is lagging behind its post-Corona plan. But in cutting costs, it looks ahead of plan. 31,000 employees left the Group during the crisis, and 8,000 jobs were lost in Germany, mainly through severance payments or early retirement. The number of employees has shrunk to around 110,000.

Layoffs not averted
However, a temporary exclusion of dismissals has been agreed with several employment groups, and the number of voluntary departures is unlikely to be sufficient from the management's point of view. Among pilots in particular, there is little willingness to leave the Group; they would have little chance of finding a job elsewhere on similar terms. In the background, therefore, preparations are probably already underway for layoffs. Financially, the Group considers itself well equipped for the flight into the post-crisis period. Net debt amounts to 9.9 billion euros. But there is access to 10.6 billion euros in liquid funds. Of the 9-billion-euro government aid package, only 3.3 billion euros had been drawn down by the turn of the year, and one billion has already been repaid through debt rescheduling.

Lufthansa hardly expects to have to fully utilize the aid. This is because it is also possible to sell parts of the Group that do not belong to the core area of flying. The second part of the in-flight catering company LSG is up for sale, and a separation from the business travel services provider Airplus is also considered possible. For the maintenance division Lufthansa Technik, a decision has not been made. Whether or not to dispose of a minority stake is to be examined in the course of the year. The majority stake is to be retained in any case.

Image by Pit Karges


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