Lufthansa bleeding cash with flights stunted by lockdowns

Deutsche Lufthansa AG said it needs to double operations from current levels if it’s to stem losses, delivering a stark assessment of the challenge facing carriers as European governments limit flights with a new wave of coronavirus lockdowns.

Capacity deployment must increase from 25% of year-ago levels at the moment to about 50% in order to meet a goal of returning to positive operating cash flow some time next year, Lufthansa said in an earnings release Thursday.

Europe’s biggest airline probably won’t hit that level until the second half of 2021, meaning it must step up efforts to cut cash burn to avoid an equity raise before next summer, Sanford C. Bernstein analyst Daniel Roeska said in a note.

Lufthansa is clinging to cash and savings targets as the latest flight curbs force carriers across the region to reassess plans for a winter low season that generally produces losses even in normal times. Chief Executive Officer Carsten Spohr said his company needs to use an “inevitable restructuring” to boost efficiencies in order to ride out the crisis.

“We are now at the beginning of a winter that will be hard and challenging for our industry,” Spohr said in the release.

Wizz Cuts

Lufthansa shares traded little changed as of 9:08 a.m. in Frankfurt. They’ve declined 51% this year, a steeper fall than at discount operators Ryanair Holdings Plc and Wizz Air Holdings Plc, but less than the drops at network rivals Air France-KLM and IAG SA, parent of British Airways.

Wizz indicated Thursday that it has revisited plans to deploy 50% of its usual schedule this winter. The carrier said in a statement that it will only operate cash-positive flights and that the scope for those “could be minimal” if current restrictions and lockdowns persist. Capacity currently stands at about 30% of year-ago levels, CEO Jozsef Varadi told Bloomberg Television.

Wizz traded 2.1% lower in London, where the Budapest-based firm is listed.

Lufthansa said it’s making progress toward some of its targets, predicting that the operating cash drain will be limited to about 350 million euros ($411 million) a month this quarter. It had planned to trim the figure to no less than 400 million euros for the winter.

The carrier confirmed a third-quarter adjusted loss of 1.26 billion euros before interest and tax, first reported on Oct. 20, when it expressed cautious optimism about the future based on cost-cutting efforts and a modest rebound in flights from shutdowns earlier in the year.

Fading Optimism

That recovery now appears likely to be strangled off by a new German lockdown introduced Monday, which like similar moves in France, Britain and elsewhere effectively outlaws non-essential trips, including leisure travel.

Carriers could slash seating by 70% in the U.K. market following a lockdown that began at midnight, travel-data provider OAG said Wednesday, citing scheduling estimates. EasyJet Plc, Britain’s biggest discounter, is scrapping all but a handful of trips to locations including the Spanish island of Tenerife, Portugal’s Algarve, and cities such as Amsterdam, according to its website.

Lufthansa’s Technik engineering division, which the company has said it could partly sell to pay down debt, swung to a loss of 208 million euros in the first nine months on an adjusted Ebit basis, potentially maker a disposal tougher.

The group offered little sign that it’s close to a union deal on cost cuts it says are needed to revive its fortunes and pay back 9 billion euros of government borrowings. Lufthansa, however, flag that it could book some restructuring expenses in the final quarter, depending on progress in talks.