Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Deutsche Lufthansa AG (DLAKF, Financial) achieved a record revenue of EUR10.7 billion in the third quarter, marking a 5% increase compared to the previous year.
- The company reached a new record seat load factor of approximately 88% in August, welcoming over 40 million passengers in the third quarter alone.
- Lufthansa Cargo and Lufthansa Technik performed positively, with the cargo business benefiting from strong demand driven by e-commerce, particularly from China.
- The company's digital innovations, including the development of a world-leading airline app, have significantly enhanced customer experience and operational efficiency.
- The Lufthansa Group's multi-hub strategy allows for strategic traffic steering, optimizing demand across its network and leveraging cost efficiencies.
Negative Points
- Lufthansa Airlines, the core brand, faced financial challenges, earning less than the previous year and highlighting the need for a comprehensive turnaround program.
- The company is experiencing significant delays in aircraft deliveries, particularly from Boeing, impacting operational capacity and efficiency.
- High regulatory costs and slow recovery in corporate travel demand are affecting Lufthansa Airlines' performance, especially in the German market.
- Irregular costs due to weather conditions, air traffic control bottlenecks, and operational challenges amounted to approximately EUR240 million in the third quarter alone.
- The company's adjusted EBIT decreased by around 9% to EUR1.34 billion, with adjusted free cash flow significantly lower than the previous year.
Q & A Highlights
Q: How would you characterize the demand environment for the remaining winter months, and what is the outlook for 2025?
A: Till Streichert, CFO, mentioned that demand remains solid, driven by leisure and premium classes. For November, 70% of seats are sold, and for December, 55%. Eurowings is on a strong trend, and all airlines are performing well except for Lufthansa Airline. Regarding 2025, it's too early to provide a detailed outlook, but positive contributions from the turnaround program are expected.
Q: Can you clarify the EUR1.5 billion turnaround program target for 2026? Is it a total quantum for the year or a run rate?
A: Till Streichert, CFO, clarified that the EUR1.5 billion is a measure volume aimed for 2026, with a ramp-up starting in 2025. The program is expected to deliver a total positive gross effect on adjusted EBIT of up to EUR2.5 billion by 2028.
Q: What are the expectations for cost negotiations with suppliers, especially hub airports, and how might changes in air freight tariffs affect your business?
A: Carsten Spohr, CEO, noted that Frankfurt Airport is the most expensive hub with significant charge increases, leading to slower growth there compared to other hubs like Zurich. Regarding air freight, the focus is shifting to Asia Pacific, particularly China, due to strong e-commerce demand.
Q: How much of the EUR1.5 billion turnaround depends on structural changes versus other factors like new aircraft?
A: Till Streichert, CFO, explained that the program aims for structural improvements, addressing productivity gaps and inefficiencies. New aircraft will contribute to cost savings, while revenue improvements will depend on fleet renewal and enhanced product offerings.
Q: What is the current state of corporate travel recovery compared to pre-pandemic levels, and what are the expectations for next year?
A: Carsten Spohr, CEO, stated that corporate travel has recovered to about 60% of pre-pandemic levels, with a pickup in demand, especially on the North Atlantic routes. The recovery is slow but steady, with yields having increased by 10-15% over the last years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
