Lufthansa starts savings program as pressure holds on prices

Deutsche Lufthansa AG said it will embark on a savings program that includes phasing out about 50 older long-haul aircraft in the latter part of the decade as the German airline group struggles with overcapacity that’s weighing on ticket prices. 

The company will reduce fleet complexity by decommissioning its four-engine Airbus SE A340-300, A340-600 and Boeing Co. 747-400, as well as the smaller Airbus A330-200 by 2028, it said on Wednesday as it reported earnings. The company said it will also improve the network “in line with the stronger seasonalization of demand.”

Lufthansa predicted that yields, a measure of ticket prices, will drop by a low single-digit percentage in the third quarter from last year, and that unit costs will rise by a similar magnitude. Capacity in the quarter will be about 96% of pre-crisis level and reach 92% for the year, the company said. Bookings until the end of October are up by more than 10%, Lufthansa said. 

Ticket prices have been under pressure particularly in Asia, where overcapacity has been most pronounced. The company cut its profit goal earlier this month, saying it’s struggling with higher unit costs and delayed aircraft, as well as the fallout from strikes earlier this year that deterred customers to book on the airline.

Lufthansa is due to replace the older aircraft with Boeing’s 787 Dreamliner and the still-uncertified and long-delayed 777X. While Boeing has said the first delivery of the 777X is set for next year, there is the risk of delay, Chief Executive Officer Carsten Spohr said on a media call Wednesday. Lufthansa still plans to hang onto its double-decker A380s and 747-8s and there was no rush to replace them, Spohr said. 

Second-quarter revenue rose 7% to €10 billion while adjusted earnings before interest and tax fell to €686 million from €1.1 billion. The company reiterated that reaching break-even at its core Lufthansa division “is becoming increasingly challenging” for this year and that adjusted free cash flow will be “well below” €1 billion.