Lufthansa Warns of Low Yields as Capacity Expands

 - August 6, 2020, 12:30 PM
Cargo operations provided some welcome relief from otherwise discouraging market conditions for the Lufthansa Group. [Photo: Lufthansa]

This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.

Lufthansa Group, for now, is sticking to plans to keep 300 aircraft grounded in 2021 and 200 in 2022, but these numbers may be on “the low side” because the company’s outlook on the recovery of air travel demand is somewhat less positive than it was a couple of months ago when it drafted the fleet restructuring plan, the group’s CEO, Carsten Spohr, conceded on Thursday. Speaking during a second-half results call with analysts, he said customer demand is only improving at a low rate.  

Spohr noted the industry is experiencing a pause in global air traffic. "We do not expect demand to return to pre-crisis levels before 2024," he said. "Especially for long-haul routes there will be no quick recovery.” Lufthansa reported a €1.7 billion ($2 billion) adjusted operating loss for the three months to the end of June, its largest-ever quarterly operating loss.

Lufthansa Group ‘s airlines carried just 1.7 million passengers in the second quarter, which was 96 percent fewer than in the previous year. Capacity in terms of available seat kilometer (ASK) has been reduced by 95 percent.

Most of the revenue was generated by the German flag carrier's MRO division, Lufthansa Technik, and also by Lufthansa Cargo, which Spohr said recorded a “stellar” performance. The air freight division generated a record operating margin of 39 percent and yields doubled year-on-year because of the capacity squeeze from the grounding of passenger aircraft. Like most airlines, Lufthansa used some passenger aircraft to carry only cargo. “Some of these “passenger services” broke even without even a passenger on board,” Spohr said. “I have never seen this before.”

After operating a skeleton schedule in April and May, the group gradually expanded its flying program and its passenger airlines jointly flew nine percent of the previous year’s capacity at the end of June. In July, ASKs were at around 20 percent of the previous year's level, with a focus on short-haul leisure routes.

Demand for long-haul flights was minimal due to Covid-related border closures that still apply to most intercontinental destinations, Spohr said. Asked whether he expected the U.S. to lift its ban on non-essential travel for Europeans in the second half, he said this was “difficult to predict. I am planning to take my family to California in October, and I hope I will be able to do that.”

In the third quarter, Lufthansa aims to be back at around 40 percent of the prior year's capacity on short- and medium-haul routes and to around 20 percent on long-haul routes. But yields and load factors will likely be below pre-crisis levels because customer demand remains low and quite a lot of capacity is returning to the market, Spohr said.

According to the Eurocontrol data, 15,662 flights operated in the European network on August 4. That marks a 12 percent increase (1,710 flights) compared to July 21 and corresponds to 46 percent of 2019 traffic levels. The main traffic flow, 88 percent or 13,722 flights, is within Europe.

Low-cost carriers (LCCs) are kick-starting the network, but traditional carriers have also expanded their offering from/to Southern Europe, Eurocontrol noted. Three LCCs rank in the top five of operating the most flights on August 4: Ryanair with 1,447 flights, followed by EasyJet (866 flights), Turkish Airlines (637 flights), Wizz Air (523 flights) and Lufthansa (439 flights). Over the past two weeks, Ryanair increased the number of flights by 50 percent and easyJet by 92 percent. Lufthansa added 14 percent of flights.

Eurocontrol said it sees “some volatility” in growth rates from one week to another perhaps as a result of the fluctuating situation with regards to travel restrictions. More and more countries or regions in Europe have imposed new restrictions in response to the resurgence of pockets of Covid-19 infections. However, the Spain-UK traffic flow does not seem to be impacted yet by the UK ‘s decision on July 24 to impose a 14-day quarantine on travelers returning from Spain.