IBA Comments: Lufthansa Group returns to profit due to record cargo result

Geoff van Klaveren, Managing Director – Advisory at IBA comments:

“Lufthansa Group has reported adjusted operating profit of EUR€1.5bn (4.6% margin) returning to its first annual profit since 2019. The EBIT margin is broadly in line with peers IAG and Air France-KLM.

“The cargo division reported a record EUR€1.6bn EBIT boosted by cargo yields that were 132% above pre-crisis levels due to reduced industry capacity. The MRO division was also very strong at EUR€511m EBIT, which benefited from the reactivation of aircraft fleets around the world. Operating cashflow was strongly positive at EUR€5.2bn with a free cashflow of EUR€2.5bn. Adjusted net debt/EBITDA was back down to a very acceptable level of x2.3.

“The Group’s airline division reported an operating loss of EUR€300m (-1.3% margin), a significant recovery from the EUR€3.3bn loss in 2021 but still a poor performance relative to peers who reported positive margins in 2022. Only Swiss International Air Lines was profitable (9.9% adj. EBIT margin) with Austrian Airlines breakeven and Lufthansa, Eurowings Discover and Brussels Airlines all loss making.

“Strong outlook: The Group has guided to adjusted EBIT for 2023 being ‘significantly above 2022’ and a target of an 8% margin in 2024. Its capacity plans for 2023 are somewhat cautious with overall network at 85-90% of 2019 and with the Asia Pacific region at only 66%, which should be supportive of yields. The company says that passenger demand remains strong with Q1 yields expected to be 20% above 2019 level and Q2 even stronger.”