Lufthansa Sees Long-Haul Recovery After $1.1 Billion Loss

(Bloomberg) -- Deutsche Lufthansa AG is expecting long-haul travel to finally pick up this year alongside loosening Covid-19 restrictions and vaccine take up, giving some cause for optimism after a second-quarter loss of 952 million euros ($1.13 billion).

North America could open up from late summer with Asia following from the end of the year, the company said in a Thursday statement. Despite rising expectations, the carrier kept its 2021 capacity forecast unchanged at 40% of pre-pandemic levels.

The operating loss for the second quarter was greater than the 766 million-euro average of analysts’ estimates, though narrower than the 1.7 billion-euro loss a year earlier. Strong bookings pushed adjusted free cash flow into positive territory during the quarter, although the overall cash drain remained at 200 million euros per month, in line with previous guidance.

Europe’s three big airline groups are starting to see a path out of the coronavirus crisis as regional governments ease quarantine rules that have battered the industry, yet a significant chunk of their businesses are tied to still-closed long-distance routes. British Airways parent IAG SA said last week it will offer only 45% of 2019 capacity this quarter, while Air France-KLM plans to fly up to 70% of its usual seats and return to profit.

‘Green Shoots’

The figures showed “green shoots of recovery,” Sanford C. Bernstein analyst Daniel Roeska said in an emailed note, adding a lot of work lies ahead to complete a broader restructuring of the group.

Lufthansa’s shares rose as much as 2.2% in early Frankfurt before paring gains. The company’s stock has fallen about 13% since the start of the year.

The group, which also owns Swiss, Austrian Airlines and low-cost carrier Eurowings, said it had made progress in refinancing its 9 billion-euro state bailout package through bond placements, though the size and timing of a capital raise has yet to be finalized.

“There is no way around making the Lufthansa Group profitable again as quickly as possible and implementing further cost reductions,” said Lufthansa Chief Financial Officer Remco Steenbergen.

Cost Cutting

Lufthansa said it has already hit full-year 2021 cost-cut targets, helped by voluntary redundancy programs. The airline in June said it wanted to pare annual expenses by 3.5 billion euros by 2024 in order to hit an 8% profit-margin target, a level it achieved just once in the five years preceding the pandemic.

The ongoing global shortage of air freight capacity pushed Lufthansa’s cargo unit to a record first-half result, helping narrow group losses. The division reported adjusted EBIT of 326 million euros in the second quarter, up from 299 million euros a year ago. The airline said it expected higher freight rates will persist in the second half as supply remains constrained.

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