Lufthansa (LH, Frankfurt International) is implementing internal cost-cutting measures amid high costs and declining revenues, the German business daily Handelsblatt reported having seen an internal letter to staff from the airline's chief executive, Jens Ritter.
Ritter reportedly revealed that measures announced in April to secure earnings for this year were insufficient.
"We are therefore continuing to reduce material, personnel, and project costs in the short term," he said in the letter published on the airline's intranet. This includes cutting material costs by 20% in administrative areas and 10% in marketing. Vacant administrative posts will remain unfilled. Vacation and flexi-time allowances will be reduced by year-end. Non-essential projects will be suspended to focus on core operational needs. "We are experiencing a new reality: not a crisis, but a structural change," he highlighted.
Lufthansa was not immediately available for comment.
Lufthansa reported an operating loss of EUR640 million euros (USD696 million) in the first quarter of 2024, contributing to Lufthansa Group's overall loss of almost EUR850 million (USD924 million) in the quarter, Handelsblatt reported. In a statement in April, the company attributed the higher-than-expected losses to multiple strikes by various employee units within the group and its system partners, resulting in a EUR350 million (USD380 million) impact on earnings. Additionally, the settled wage disputes, particularly affecting Lufthansa itself, were anticipated to further negatively impact the second-quarter results by an additional EUR100 million (USD109 million) due to reduced short-term demand for travel bookings.
The situation has deteriorated since April, according to Ritter's internal memo, citing several reasons: ticket prices, which have surged by 23% over the last two years due to high demand and have stabilised, lowering revenue growth. Concurrently, substantial wage deals are driving up operational costs. In addition, competition on key routes to the USA and Asia has intensified.
Lufthansa also relies heavily on year-round business travellers, whose numbers remain low following the pandemic. In contrast, the airline is experiencing an increase in leisure travellers, though predominantly during the summer months. "With our current system, we have little opportunity to compensate for such seasonal fluctuations," Ritter explained.
Despite these challenges, Lufthansa Group said in April that it anticipated improved financial results in the second half of the year. Adjusted EBIT (earnings before interest and taxes) for the full year is projected to be around EUR2.2 billion (USD2.3 billion), down from EUR2.68 billion (USD2.91 billion) the previous year. Adjusted free cash flow is expected to be at least EUR1 billion (USD1.12 billion), down from the initial estimate of at least EUR1.5 billion (USD1.63 billion). It cautioned that uncertainties stemming from the ongoing conflict in the Middle East and other geopolitical issues pose risks to the group's financial outlook for the year.
