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Cost of the crisis? Lufthansa burning $896 million per month

Cost of the crisis? Lufthansa burning $896 million per month


There is no doubt that the coronacrisis is an unprecedented event in the history of the aviation industry. No airline was spared, as almost all carriers had to ask their respective home governments for financial support. Lufthansa did so as well and in quite a dramatic fashion: going from debating self-insolvency, similar to Chapter 11 Bankruptcy proceedings in the United States, to finally negotiating a deal with the European Commission to approve a $9.8 billion (€9 billion) state aid deal from the German government to stabilize its finances.

There were critics, questioning why the carrier would need such a steep amount of taxpayers’ money. But the latest results provided by Lufthansa could indicate the reason why.

The airline indicated that even after reducing fixed costs by one third, the company still burned $896 million (€800 million) of its liquidity reserves per month. As of March 31, 2020, Lufthansa had $4.8 billion (€4.3 billion) of cash reserves.

“In addition, the reimbursement of canceled airline tickets and the repayment of financial liabilities that have fallen due will have a foreseeable negative impact on our liquidity development,” noted Thorsten Dirks, a member of the company’s executive board. Carsten Spohr, the chairman of Lufthansa’s board, stated that the company will undergo “far-reaching restructuring measures to counteract this,” hinting at possible job and pay cuts at the airline group.

Coronacrisis will have long-lasting implications

The immediate cash crunch the airline currently faces would force it to increase annual free cash flow “significantly” compared to pre-crisis levels. However,  demand for air travel would remain below pre-crisis levels “for years to come,” added Dirks.

“This will only succeed if we implement restructuring programs in all areas of the Group and agree on innovative solutions with the unions and working councils.”

Lufthansa indicated that it planned to meet with some of the unions, representing the group’s employees, including Verdi, Vereinigung Cockpit and UFO.

The airline group posted a net loss of $2.3 billion (€2.1 billion) in Q1 2020. It carried 21.8 million passengers and lost 18% of total revenue compared to Q1 2019. The net loss attributed to the first quarter of the year increased by a whopping 521% compared to the corresponding period in 2019.

Lufthansa’s biggest troubles were in April and May 2020. During the period, the carrier grounded 700 out of its 763 total aircraft and saw a 95% passenger traffic drop off. 

Recovery is far off, still, predicts the airline. It plans to have 300 aircraft parked in 2021, or about 39% of its total fleet in 2019. 200 jets will be parked the year after, and as the crisis ends in 2023, as Lufthansa has envisioned, it will still have 100 aircraft less compared to 2019.

The company plans to reinstate some of its flights starting June 15, 2020, as it increases its capacity significantly by up to 2,000 weekly connections to 130 destinations.

“A step-by-step expansion of the flight schedule is now being worked out over the next three months.”

 





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