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Deutsche Lufthansa said it will initiate a cost-cutting drive at the namesake airline business that includes freezing projects and review hiring in some areas after Europe’s largest carrier was forced to pare back its earnings outlook for the year because of persistent strikes in Germany.
The measures will strengthen earnings in the short term following a 640 million euro loss (S$932.2 million) at the main Lufthansa brand in the first quarter, the airline group said in a statement on Tuesday (Apr 30). The total adjusted operating loss in the traditionally weak first quarter jumped to 849 million euros from a 273 million euro deficit a year earlier, while sales rose 5 per cent to 7.39 billion euros.
Lufthansa already warned in mid-April that it won’t achieve its targets for this year because of the prolonged strikes, which it has since settled with new wage accords. The company expects adjusted operating profit of 2.2 billion euros this year, hurt by 350 million euros in costs tied to the work stoppage and the subsequent reluctance by customers to book.
“We are now leaving the first quarter behind us, which was mainly impacted by strikes, and are at a turning point,” chief executive officer Carsten Spohr said in a statement, adding that the company sees strong demand and that planes “remain well filled throughout.”
Lufthansa pared back its capacity outlook for 2024, predicting 92 per cent of pre-Covid levels, down two percentage points from its previous target. Strike costs will come in at another 100 million euros in the second quarter because sales continued to suffer from lingering customer reluctance to book short-term trips, according to the company.
As a result, operating profit will be lower in the second quarter from the year-earlier figure before rising again in the second half, helped by stronger bookings, the airline said.
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For the full year, unit revenue will drop in “the low single-digit percentage range, partly because customers were reluctant to make short-term bookings for April and, to a lesser extent, May,” Lufthansa said.
Adjusted free cash flow for the year will also be weaker than previously planned, now projected to be “at least” 1 billion euros, versus at least 1.5 billion euros seen earlier.
Besides strike disruptions, Lufthansa has also been hurt by a lack of capacity on long-haul routes because of delays in aircraft deliveries. The carrier has already brought back some of its Airbus A380s as a result, with five of the double-deckers in service again, and another three units coming back later this year and in 2025.
Overall, the group expects to receive as many as 30 new aircraft in 2024, it said. BLOOMBERG
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