Lufthansa Cargo posts poor Q2 results

Lufthansa Group reported revenue of 9.4 billion euros ($10.3 billion) for the second quarter of 2023, a 17.4% year-over-year increase. While the company did not specify Lufthansa Cargo ’s Q2 revenue, the subsidiary ’s adjusted EBIT was $40.5 million, a decrease of 92.3% YoY. [caption id="attachment_57137524" align="alignright" width="300"] (Photo/Lufthansa Group)[/caption] The company recorded the highest Q2 results ever for subsidiaries SWISS , Austrian Airlines , Brussels Airlines , Eurowings and Lufthansa Technik , according to today’s earnings report. THE BIG PICTURE: Like its airline competitors, Lufthansa’s profit came from passenger travel, not cargo , which has been depressed due to high capacity and low demand. BY THE NUMBERS: While the group did well as a whole, cargo operations hit a slump: The group’s EBIT for Q2 was $1.2 billion, a 176.8% YoY increase; The group’s first-half revenue was $17.9 billion, a 20.7% YoY increase; The group saw 3.8 million available cargo tonne kilometers in Q2, down 14.8% from 2019; and The group’s cargo load factor was 56.4%, down 3.9 points. WHAT THEY’RE SAYING: The normalization of rates in the global airfreight market continued as expected in the second quarter of the year, according to the earnings report. Despite lower demand, however, Lufthansa Cargo’s average yields remained 40% above 2019 levels. Freight capacity in the second quarter for Lufthansa Group was up 6% YoY, mainly due to the recovery in passenger flight operations and the associated expansion of belly capacities. “Lufthansa Cargo’s market environments continue to normalize in the second quarter, as industry capacity increased,” Chief Financial Officer Remco Steenbergen said in today’s earnings call, “resulting in a yield decline of 47% compared to the prior year’s quarter.” While Lufthansa Cargo saw reduced profitability, Steenbergen said the subsidiary compares favorably to competitors. “Lufthansa Cargo yields remained at around 40% above the pre-crisis level, a significant premium over the broader market, demonstrating Lufthansa Cargo’s favorable position, which is also helping the business to gain shares,” he said. STATE OF PLAY: While several airfreight industry companies have been reducing staff , Lufthansa Group grew it. “In 2022, we hired more than 11,000 new colleagues,” Chief Executive Carsten Spohr said in the earnings call. “For ’22 and ’23 combined, we expect this figure to be around 20,000. We already reached the target at the end of July, and we continue to recruit. However, not all our suppliers and partners are as successful in the labor market as we are.” This has led to staff shortages felt by Lufthansa. To avoid further shortages and work disruptions, Spohr said the group successfully negotiated with 10 unions in five countries in the first half of 2023. MARKET REACTION: Lufthansa Group stock ( NASDAQ: DLAKF ) fell following the earnings call. The company ended today at $9.27 per share, down 3.94% from market open. During Q2, three credit-rating agencies gave upgrades to Lufthansa Group: S&P Global upgraded the company to BB+ from BB with a positive outlook in April; Moody’s upgraded the company to Ba1 from Ba2 with a stable outlook in May; and Scope confirmed the company’s BBB rating and upgraded its outlook to “positive” in May. FUTURE LOOK: Lufthansa Group expects passenger demand to remain high for the remainder of the year; current bookings from August through December are approximately 90% increased from 2019 levels. As for cargo operations, Spohr does not expect to see any big swings either way in the market for the rest of the year. “While we do not foresee any significant trend changes in the short term, it will be a question of time, as companies will have to replenish inventories if growth of the global economy picks up again ,” Steenbergen said. “Expect us to remain at these current levels relative to 2019. We have confidence that Lufthansa Cargo will be able to achieve adjusted EBIT of around [$328.2 million] for the full year of 2023, very good results by historical standards.” Join Air Cargo Next for the second annual Air Cargo Tech Summit on Monday, Sept. 18, and Tuesday, Sept. 19, at the Brussels Marriott Hotel Grand Place in Belgium. For more information on the summit and to register, click here .

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