Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Lufthansa gives subdued 2024 outlook as labour disputes weigh

Published 03/07/2024, 01:05 AM
Updated 03/07/2024, 07:26 AM
© Reuters. FILE PHOTO: An aerial view shows a Lufthansa plane on tarmac in Frankfurt's airport April 21, 2010. REUTERS/Johannes Eisele/File Photo

By Joanna Plucinska and Ilona Wissenbach

LONDON/FRANKFURT (Reuters) - Lufthansa warned on Thursday its operating losses in the first quarter will widen and gave a subdued outlook for 2024 as the German airline struggles with costly labour disputes, offsetting the travel boom.

The airline said operating results this year would be on par with 2023, but Chief Financial Officer Remco Steenbergen said there was "no hard commitment" to meet a target for operating margins to hit 8% for the year. They were 7.6% in 2023.

Steenbergen said the company would try to get "as close as possible" to the 8% target, and would broadly keep the target even if Lufthansa doesn't achieve it this year.

Adjusted EBIT margins will fall to 6.9% this year from 7.6% in 2023, according to a company-provided analyst poll.

Europe's airlines have benefited from unprecedented demand after the pandemic, allowing them to raise prices, but higher labour and maintenance costs have limited earnings growth.

Lufthansa in particular has agreed to new, higher pay deals to end strikes, which analysts and investors say threaten its 2024 operating margin target.

On Thursday, Lufthansa ground staff walked off the job, while on Wednesday cabin crew voted to strike as they seek a 15% wage increase, a potential harbinger of further profit erosion.

The strikes are likely to contribute to a larger-than-expected operating loss in the first quarter of 2024, the company said, with the second and third quarters set to be strong.

Shares were down 1.4% at 0922 GMT.

Despite the flat operating result expected in 2024, the company said its results were strong enough to propose issuing a divided of 0.30 euros a share, to be voted on at the annual general meeting on May 7.

The group has not issued a dividend since 2019.

The results come almost two weeks after the airline announced the surprise departure of Steenbergen, which knocked its share price and rattled investor confidence.

Operating profits for 2023 were up 76% from 1.5 billion euros ($1.63 billion) in 2022. Revenues of 35.4 billion euros ($38.58 billion) were up almost 15%, but were lower than the 36.3 billion euros expected in a company-issued poll.

CAPACITY

Analysts pointed to Lufthansa's slower growth in capacity compared to its rivals, with the group struggling with some plane groundings tied to RTX's Pratt & Whitney engine issues.

"We continue to see a more cautious pace of capacity restoration at Lufthansa versus other European peers," Bernstein analyst Alex Irving said.

The carrier's shares have outperformed European rival flag carriers Air France-KLM and IAG since early 2022 as the region's travel industry recovered from disruption caused by the global COVID-19 pandemic.

Last week, results from Air France and British Airways owner IAG put the spotlight on challenges for the industry from high prices of jet fuel, to geopolitical flashpoints, problems at plane makers and wage talks.

© Reuters. FILE PHOTO: An aerial view shows a Lufthansa plane on tarmac in Frankfurt's airport April 21, 2010. REUTERS/Johannes Eisele/File Photo

Lufthansa shares trade at five times forecast earnings over the next 12 months, compared to four times for IAG and three for Air France-KLM.

($1=0.9175 euros)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.