Contributor - Europe

Cathy Buyck

Lufthansa has become the latest airline group in Europe to report grim results for the period from July through&nbsp;September, traditionally its most profitable quarter, and the carrier warned that in the upcoming winter months demand for air travel is expected to remain low due to an increase in Covid-19 infection rates and the associated travel restrictions. Several of Lufthansa's&nbsp;so-called home markets, including Germany, Austria, and Belgium, have announced new lockdowns in recent weeks. “No one can predict how long the travel warnings or lockdowns will last," said Lufthansa Group CEO Carsten Spohr, speaking during the company’s third-quarter results call with analysts on Thursday.&nbsp;"No one can predict how air travel will pick up again and when we will see a sustainable recovery.” &nbsp;However, one thing is certain, he added: “The winter months will be an immense challenge, not only for Lufthansa but for the whole aviation and travel industry.”

 


The airlines of the Lufthansa Group, therefore, have scaled back their original planning for the fourth quarter and will operate at a “maximum” of 25 percent of last year's fourth-quarter capacity. Lufthansa and subsidiaries Eurowings, SWISS, Austrian, and Brussels Airlines will ground 125 more aircraft during winter 2020/2021 than originally planned and in administrative areas, only activities that are necessary for operations, legally required, or related to the necessary restructuring will take place.

 


In line with management’s strict focus on limiting cash outflow, only flights that continue to make a positive contribution to earnings will be operated, Spohr said, asserting that the group’s business model and hub setup have&nbsp;proven to be&nbsp;a “strategic benefit” in this crisis. Its airlines bundle traffic flows through the group’s hub airports at Frankfurt and&nbsp;Munich, Germany; Zurich, Switzerland; Vienna, Austria; and Brussels, Belgium;&nbsp;&nbsp;and they&nbsp;are able to offer many domestic and European connections that would otherwise be uneconomical as point-to-point connections during this current market environment, he explained.

 


Lufthansa did not provide a split between fourth-quarter&nbsp;short-haul and long-haul capacity, but Spohr insisted the group would not rush to restore its previous network and said that reinstating its long-haul network would be in cooperation with its international joint-venture partners. “We have joint-venture partners in all five major intercontinental markets, the U.S., Canada, China, Singapore, and Japan," he noted, adding that&nbsp;"we are allowed to talk capacity" and&nbsp;insisting that "there is no push for us to fly all aircraft again. We are cash-optimizing the ramp-up of the long-haul [network].”&nbsp;the carrier's total Airbus A380 and A340-600 fleets and Boeing 747-400s are moved to long-term storage and permanent decommissioning. In the third quarter, Lufthansa’s network airlines flew just 18 percent of capacity measured in available seat kilometers (ASK)s of the level of the year-ago period.

 


The company aims to limit the cash drain on operations to €350 million per month in the current quarter. In the third quarter, the monthly cash outflow averaged €200 million, thanks in part to the temporary recovery in passenger business, which has stalled since September. Still, Lufthansa said it remains on track for returning to a positive operating cash flow during&nbsp;2021, though the prerequisite for this is that the pandemic situation allows&nbsp;for an increase in capacity to around 50 percent of pre-coronavirus crisis levels.

 


Lufthansa Group posted a net loss of €1.97 billion ($2.31 billion) in the third quarter compared with a net profit of €1.15 billion a year earlier. Revenue fell year-on-year 74 percent, to €2.66 billion. Its airlines carried just 8.7 million passengers, 20 percent of the previous year. The seat load factor was 53 percent, 33 percentage points below the previous year's figure. For the first nine months of the year, net loss was €5.6 billion.

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