Lufthansa upbeat on outlook as travel boom seen continuing

Deutsche Lufthansa AG said it’s on track to meet its financial targets this year and in 2024 as robust travel demand during the summer season extends into the slower final months and leisure travelers upgrade to more expensive seats. 

The airline group rose as much as 8.5% in Frankfurt trading, the most in more than a year. Adjusted operating profit will exceed €2.6 billion ($2.8 billion) this year, after hitting €1.47 billion in the third quarter, beating analyst estimates, according to a statement released on Thursday. The company also said it expected to hit a target for its earnings margin of at least 8% in 2024.

Lufthansa said bookings for the Christmas season are strong, with an ongoing trend toward upgrades into first and business class. While earnings at its cargo division fell to just €1 million during the quarter due to an economic slowdown, overall ticket yields at its airline businesses were 25% above pre-pandemic levels, boosting profit.

“Even though the geopolitical situation remains challenging, our booking outlook gives us reason to be positive - not only for a very good group result this year, but also beyond,” Chief Executive Officer Carsten Spohr said in the statement.

Lufthansa and other airlines have been profiting from strong demand for air travel, helping them repair balance sheets that took a hit from the coronavirus pandemic. Concerns are mounting about longer-term demand as households wrestle with inflation and rising interest rates, and geopolitical tensions, particularly in the Middle East, have started to deter some travelers.

Shares of Lufthansa rose as much as 56 cents to €7.13, the biggest intraday gain since July 2022. The gain cut this year’s decline to about 9.2%.

Lufthansa had an operating margin of 8.5% so far this year ahead of its final quarter, traditionally a period in which profitability is lower. That’s double the figure achieved in the same period last year, putting the company on track to reach its longer-term profitability ambition in 2024.

The German airline group’s main European rivals, British Airways parent IAG SA and Air France-KLM, both reported record third-quarter operating profit last week, driven by booming summer demand, particularly between Europe and North America. The airlines said the war between Hamas and Israel is clouding the outlook for travel to the Middle East, with signs that some customers were avoiding booking to nearby destinations.

Lufthansa on Thursday cautioned that it’s “mindful of geopolitical and macroeconomic risks,” and that the company will “preserve maximum flexibility to adapt its plans if necessary.” 

The airline remains in expansion mode and announced plans to hire an additional 2,000 pilots earlier this week. Lufthansa also plans to order 40 regional aircraft, and is deciding between the Airbus A220s or Embraer E2s, as well as a further 40 Airbus A320neos, Spohr said Thursday.

It reiterated that it’s seeking approval from the European Commission to buy a 41% stake in Italy’s ITA Airways by early 2024, a process that has been drawn out amid close scrutiny by regulators. Lufthansa said it was continuing with talks over a potential sale of a stake in its Lufthansa Technik maintenance division, and expected to take a decision on whether to sell by the end of this year.

Lufthansa said 64 of its A320neos are impacted by an issue with their Pratt and Whitney engines, and consequently around 20 aircraft will be unavailable on any given day in 2024. 

Pratt, owned by RTX Corp., has said that around 3,000 jet engines globally need inspections for potentially flawed components made with contaminated metal powder. The issue will idle hundreds of A320neo aircraft over the next three years, with the total time needed for repairs taking between 250 and 300 days.