Deutsche Lufthansa Faces Challenges Despite Profit Beat
Shares of Deutsche Lufthansa have suffered a sharp decline due to rising inflation-driven costs and ongoing capacity constraints caused by air-traffic control staff shortages and supply-chain issues. Nevertheless, the German carrier group reported profits for the second quarter that exceeded analysts' expectations.
Rising Costs and Limited Capacity Impact Lufthansa
Lufthansa shares experienced a significant drop, with a 7% decrease to EUR8.21 in early trading. The airline cited increased expenses, particularly for air traffic control, airport charges, maintenance, and spare parts. Similar challenges were also highlighted by Franco-Dutch carrier group Air France-KLM, which attributed their higher costs to increased salaries.
According to Deutsche Bank analysts, the market's negative response to Air France-KLM's higher non-fuel unit cost guidance last week introduces a potential risk for Lufthansa.
Supply-Chain Snags Add to Challenges
In addition to rising costs, airlines are grappling with supply-chain difficulties, making it more challenging to procure spare parts and quickly deploy aircraft as required.
Capacity Expectations Lowered due to Traffic System Bottlenecks
Bottlenecks in the European air traffic system are expected to impact Lufthansa's capacity for the year. The airline now forecasts that its capacity will be around 85% compared to 2019, a revision from the previous estimate of roughly 85% to 90%.
Increased Demand Offset by Higher Expenses
Despite facing various challenges, Lufthansa witnessed high demand, particularly in premium cabins, resulting in a 13% increase in yields for passenger airlines compared to the previous year. The load factor—an indicator of seats sold—remained steady at 83%, matching the levels seen in 2019. However, Citi analysts noted that higher expenses offset the positive impact of improved yields.
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