BERLIN: Deutsche Lufthansa AG says it needs to double operations from current levels if it’s to stem losses, delivering a stark assessment of the challenge facing carriers as European governments limit flights with a new wave of coronavirus lockdowns.
Capacity deployment must increase from 25% of year-ago levels right now to about 50% in order to meet a goal of returning to positive operating cash flow some time next year, Lufthansa said in an earnings release yesterday.
Europe’s biggest airline is clinging to cash and savings targets as the latest flight curbs force carriers across the region to reassess plans for a winter low season that generally produces losses even in normal times.
Lufthansa chief executive officer Carsten Spohr said his company needs to use an “inevitable restructuring” to boost efficiencies in order to ride out the crisis.
“We are now at the beginning of a winter that will be hard and challenging for our industry, ” Spohr said in the release.
Lufthansa is making progress toward some of its targets, predicting that the operating cash drain will be limited to about 350mil (US$411mil) a month this quarter. It had planned to trim the figure to no less than 400mil for the winter.
The carrier confirmed its third-quarter adjusted loss of 1.26bil before interest and tax, first reported on Oct 20, when it expressed cautious optimism about the future based on cost-cutting efforts and a modest rebound in flights from shutdowns earlier in the year.
That recovery now appears likely to be strangled off by a new German lockdown introduced Monday, which like similar moves in France, Britain and elsewhere effectively outlaws non-essential trips, including leisure travel.
Lufthansa said it was sticking to its strategy of keeping flight capacity low and keeping back office operations to a minimum.
The performance of non-airline business units might trouble investors who hope they can be sold to reduce a teetering debt pile.
Maintenance unit, Lufthansa Technik, a division the company has said it could sell in part, swung to a loss of 208mil in the first nine months on an adjusted EBIT measure, reducing headroom for investment in a business fighting to keep up with rapid digitisation.
The airline offered little sign that it’s close to an agreement with its labour unions over the deep cost cuts management say are needed to revive its fortunes and pay back 9bil of government borrowings. The company did, however, flag that it could book some restructuring expenses in the final quarter, depending on progress in talks.
Lufthansa shares had dropped 51% this year as of Wednesday’s close.
That’s a steeper decline than at discount operators Ryanair Holdings Plc and Wizz Air Holdings Plc, but less than the drops at network rivals Air France-KLM and IAG SA, parent of British Airways. — Bloomberg