Parent company of German flag carrier, the Lufthansa Group has reported a loss for the first half of 2019. The Group blames competition from low-cost carriers and increases in operational costs for their poor bottom line performance.
In their recent earnings call, Lufthansa Group reported a quarterly net profit of €226 million ($252 million). This is a drop of 70% compared to the same period last year, and has failed to pull Lufthansa out of a loss making position for the first half of 2019.
While the most recent quarter has been better for the airline than the first three months of the year, the overall picture is still one of losses, to the tune of €116m ($128m).
Losses despite growth
The net loss posted by the German Group is in spite of relatively solid growth overall. The second quarter of 2019 saw the airline recording €9.6bn ($10.6bn) in revenue, which is up 4% compared to the same quarter last year. The overall first half of 2019 brought in €17.5bn ($19.3bn), a rise of 3% year on year.
Despite this growth, the higher operating costs being faced by the airlines in the group has cast a shadow of loss on their bottom line. Last year, Lufthansa earned €713m ($787.5m) in the first six months of the year. This year, they lost over 100m euros.
In its earnings call, Lufthansa noted that fuel costs alone were €225m ($248m) higher in the second quarter of 2019 than they were in the previous year. Added to this, a revaluation of tax risk in Germany meant the airline had to make a provision of around €340m ($375m) for this.
Squeezed by low-cost carriers
While the Group’s performance in long-haul operations was still strong, ongoing pressure from LCCs on their home turf has made short-haul profitability difficult. CEO of Lufthansa, Carsten Spohr, has blasted budget carriers like Ryanair numerous times in recent weeks, calling their low fares ‘irresponsible’.
Ulrik Svensson, Chief Financial Officer of the Group said in a press release,
“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,”
Looking forward, the Group expects things to continue in the same vein, saying that,
“Persistent overcapacities, aggressive competition and increasingly price-sensitive demand continue to pressure yields on the European routes of the Network Airlines and Eurowings, particularly in the German and Austrian home markets. The Lufthansa Group expects the European market to remain challenging until at least the end of this year.”
Dragged down by Eurowings
Lufthansa Group has a number of airlines in its network, including Lufthansa, Swiss, Austrian and low-cost carrier Eurowings. Across the full-service airlines, earnings were €565m ($642m), down from €989m last year. Capacity across these airlines grew by 4.9% and load factors increased by almost one percentage point. Not great results, but not terrible either.
However, the overall results were significantly dragged down by poor performance at Eurowings. The low-cost carrier posted an overall loss of €273m ($301m), more than 50m euros worse than last year. Despite capacity growth of 3.8%, the carrier is still working with low load factors of just 80%. Eurowings is currently undergoing restructuring in an effort to cut costs, including dropping long haul routes and simplifying the fleet and operations.
Lufthansa remains positive that the low-cost subsidiary can be turned around, saying in the report that,
“…with the turnaround plan which we recently presented, we also intend to make Eurowings a sustainably profitable airline.”