Lufthansa Cargo revenues offer support to Lufthansa Group
Lufthansa Group reported an 80 percent drop in revenue to EUR 1.9 billion in the second quarter weighed down by the Covid-19 crisis with most of the revenue (EUR 1.5 billion) contributed by Lufthansa Cargo and Lufthansa Technik. The loss of cargo capacity in passenger aircraft led to a significant increase in yields leading to Lufthansa Cargo's adjusted EBIT rising to EUR 299 million.
Freight capacity offered fell by 54 percent due to a lack of capacity on passenger aircraft. The decline in freight kilometers sold was 47 percent. This reflects an increase in cargo load factor by 10 percentage points, to 71 percent. Traffic development in the first half of 2020 in the first six months, the Lufthansa Group airlines carried a total of 23.5 million passengers, two thirds fewer than in the same period last year (minus 66 percent). Capacity decreased by 61 percent. The seat load factor fell by 9 percentage points to 72 percent in the period. Freight capacity offered fell by 36 percent and cargo kilometres sold by 32 percent. This resulted in an increase in cargo load factor by 4 percentage points to 66 percent.
The Lufthansa Group Adjusted EBIT in the quarter under review amounted to minus EUR 1.7 billion (previous year: EUR 754 million), despite extensive cost reductions. Operating expenses were reduced by 59 percent, primarily through the introduction of short-time working for large parts of the workforce and the cancellation of non-essential expenditures. However, these measures were only partially able to compensate for the decline in sales. The consolidated net income of Lufthansa Group for the April to June months amounted to minus EUR 1.5 billion euros (previous year: EUR 226 million).
Report card for first half of 2020
In the entire first half of 2020, Lufthansa Group revenue fell by 52 percent to EUR 8.3 billion (previous year: EUR 17.4 billion). Adjusted EBIT amounted to minus EUR 2.9 billion (previous year: EUR 418 million) and EBIT to minus EUR 3.5 billion (previous year: EUR 417 million). The difference between the two figures is mainly due to depreciation on aircraft and aircraft usage rights amounting to 300 million euros, goodwill impairments totaling EUR 157 million and the impairment of joint venture holdings in the MRO segment totaling EUR 62 million. In addition, the negative market value development of fuel cost hedging contracts had a negative impact of EUR 782 million on the financial result in the first six months of the year. Compared with the first quarter, this effect decreased by 205 million euros.
The Lufthansa Group net result for the first half of the year thus amounted to minus EUR 3.6 billion (previous year: minus EUR 116 million). Traffic development in the second quarter of 2020. In the second quarter of 2020, the Lufthansa Group airlines carried 1.7 million passengers, 96 percent fewer than in the previous year. Capacity fell by 95 percent. The seat load factor was 56 percent, 27 percentage points below the previous year's figure.
Cash flow and liquidity development capital expenditure fell to EUR 897 million from the previous year’s EUR 1,904 million in the first half of the year, mainly due to postponing planned aircraft deliveries, with only 127 million euros of capital expenditure in the second quarter. The drastic reduction in capital expenditure, the Group-wide focus on securing liquidity and strict working capital management limited the cash outflow despite the significant drop in earnings. The adjusted free cash flow for the first half of the year thus amounted to minus 510 million euros.
Normalization of demand to pre-crisis level expected for 2024 at the earliest
Carsten Spohr, chairman of the Executive Board and CEO of Deutsche Lufthansa AG, said: "We do not expect demand to return to pre-crisis levels before 2024. Especially for long-haul routes there will be no quick recovery. We were able to counteract the effects of the coronavirus pandemic in the first half of the year with strict cost management as well as with the revenues from Lufthansa Technik and Lufthansa Cargo. And we are benefitting from the first signs of recovery on tourist routes, especially with our leisure travel offers of the Eurowings and Edelweiss brands. Nevertheless, we will not be spared a far-reaching restructuring of our business. We are convinced that the entire aviation industry must adapt to a new normal. The pandemic offers our industry a unique opportunity to recalibrate: to question the status quo and, instead of striving for "growth at any price", to create value in a sustainable and responsible way.”
Lufthansa Cargo’s CEO Peter Gerber said, “Even during the Corona crisis, we kept our freighter schedule stable to maintain supply chains via air with high flexibility. Our freighters are of high importance in the current crisis. To achieve massive cost reductions, we took measures early on.”
In the third quarter, capacity offered is planned to increase to an average of around 40 percent of the prior year capacity on short- and medium-haul routes and to around 20 percent on long-haul routes. In the fourth quarter, capacity is planned to further increase to an average of around 55 percent (short- and medium-haul) and around 50 percent (long-haul). With this, the group plans to return to 95 percent of the short- and medium-haul and 70 percent of the long-haul destinations by the end of the year. Thanks to a high degree of flexibility in supply and capacity planning, this figure can also vary at short notice. Despite the capacity expansion, the Lufthansa Group also expects a clearly negative Adjusted EBIT in the second half of 2020 and thus a further significant decline in Adjusted EBIT for the full year. This reflects the expectation that important long-haul routes will continue to be served only to a very limited extent due to ongoing travel restrictions.