Why has Lufthansa already lost over 300 million euros this year?
For the first three months of 2019, Lufthansa lost 336MN EUR (~ $380MN USD). Blaming rising fuel costs and overcapacity in Europe, the German airline swung to loss after reporting a 52MN EUR profit during the same period last year. The loss was worse than analysts expected, sending Lufthansa’s stock price down (though it has since rebounded).
Of course the circumstances last year were different. Air Berlin had collapsed the previous October and Lufthansa greatly benefited from the sudden loss of capacity. Furthermore, fuel prices were 202MN EUR lower over the same period in 2018. Finally, Easter was earlier last year, leading to a bump in Q1 bookings.
While the carrier expects a better second quarter and a full year profit margin of 6.5 – 8%, the overcapacity problem is a concerning one.
One analyst told Bloomberg,
This is a much bleaker picture than consensus expectations. It is unclear to us what the material changes over the past five weeks could have been to prevent a clearer guidance by the company.
The 202MN EUR increase in fuel price was no surprise. Thus, the unexpectedly poor numbers were either already anticipated (but held back) by the carrier or truly the result of intense competition, as Lufthansa claimed.
I would think the elimination of WOW Air, Flybmi, Germania, Primera Air, and Cobalt would help rather than hurt overcapacity. But Lufthansa has engaged in “fare wars” with full-service rivals that have hurt overall numbers.
CONCLUSION
It is always concerning to see loss reported during periods of relative calm like the era we are in. While Q1 is always historically the weakest quarter for northern hemisphere airlines, the numbers illustrate a continuing dilemma for Lufthansa. While wanting to maintain its market share and not cede routes based upon price, there still may be too much capacity in Europe if disciplined and organized Lufthansa is losing money.
LH is an airline I have always viewed as complacent when it comes to competing on product and contracts.
The LH group network does not make sense either – they do not complement well causing airlines within the group to “cannibalize” each other to an extent. Major hubs all lumped in one area (ZRH, FRA, MUC, VIE, DUS, and BRU). That is six hubs within a couple hundred miles from each other.
Not sure I quite agree that the network does not make sense.
Yes having lots of hubs within a relatively small area is not ideal all else being equal, but remember there are a lot of people living and working in or near their hubs. Running through the six you list..
ZRH – global financial hub
FRA – also global financial hub and economic centre
MUC – economic centre of Southern Germany
VIE – Less defend-able, but Austrian only have 12 Longhaul aircraft so its not like they are running a colossal hub there
DUS- mostly leisure routes for the large population between Bonn and Dortmund that are all less than 50 miles from DUS
BRU – EU HQ + national capital is going generate traffic
So yes, lots of hubs in a small area but other than VIE, and GVA (which isn’t really a hub anyway) if it wasn’t Lufthansa group providing a lot of traffic there then its pretty clear that someone else would do so.
Lufthansa had very profitable previous year when they benefited from the collapse of Air Berlin and had to fly very big planes between Berlin and Frankfurt to handle all the passengers. Since they they have pretty much lost all Berlin based traffic. Berlin being the largest city by population in Germany and also an airport for people who live nearby in Poland. Lufthansa consolidated the A gates they use through a single security checkpoint leading to chaotic scenes at the airport which understandably people with choices don’t want to put up with. Eurowings and Lufthansa have a really bad reputation at this point. That leaves Easyjet and Ryanair to pick up all that traffic which in particular Easyjet has done with great success. Easyjet is now the dominant carrier out of both SXF and TXL airports.
The way Lufthansa treats Berlin in terms of importance will cost them dearly in the long run. And for the last few years Easyjet has performed very well on the routes I fly.
By the way Matt your commenting form doesn’t seen to work well.
I agree with the comment about Lufthansa being complacent. Their home market has always been protected – just look at the way the ME3 are restricted in their operations. Air Berlin were not an effective competitor on short haul services and Lufthansa knew it. Easyjet have now moved in with their perfectly acceptable offering and of course Easyjet is sound financially and is taking short haul travel by storm and they are not yet fully established.
At the same time Lufthansa short haul business class is lamentable charging a lot and giving little, they have been passed by Air France on many fronts.
Swiss offer a solid product and are profitable. Austrian offer a dreadful product which has been cut and cut and they are attempting to charge astronomical fares for it and wondering why people are spending their money elsewhere.
Lufthansa as a group need to sort out where they are and what they’re at. Short haul business needs a radical improvment, long haul business needs a seat fit for purpose which competes with others, first needs to get up to Air France speed – LH first is not bad, they’ve just lost their edge and economy like other legacy carriers needs to be worth the money and different to the budget airlines.
I’m not sure the current LH management believe though that they are getting much wrong at present.
Hi. In australia we can’t understand airlines like lufthansa. No one operates a direct direct Europe to sydney or melbourne flight. Yet the a350 900 and a350 1000 has the range.
Qantas flies its boeing 787 Perth to London with load factor of 94 percent. Yet Perth is a stop over if u start in sydney or Melbourne.
Lufthansa could have a monopoly on the Europe to sydney or melbourne route till other airlines get the correct aircraft to compete with.
In meantime monopoly. Unique product and bring extra people into the lufthansa network
Win win win I say