Lufthansa gives subdued 2024 outlook as labour disputes weigh

Lufthansa warned on Thursday its operating losses in the first quarter will widen and gave a subdued outlook for 2024 as the German airline struggles with costly labour disputes, offsetting the travel boom. The airline said operating results this year would be on par with 2023, but Chief Financial Officer Remco Steenbergen said there was "no hard commitment" to meet a target for operating margins to hit 8 per cent for the year. They were 7.6 per cent in 2023.

Steenbergen said the company would try to get "as close as possible" to the 8 per cent target, and would broadly keep the target even if Lufthansa doesn't achieve it this year. Adjusted EBIT margins will fall to 6.9 per cent this year from 7.6 per cent in 2023, according to a company-provided analyst poll. Europe's airlines have benefited from unprecedented demand after the pandemic, allowing them to raise prices, but higher labour and maintenance costs have limited earnings growth.

Lufthansa, in particular, has agreed to new, higher-pay deals to end strikes, which analysts and investors say threaten its 2024 operating margin target. On Thursday, Lufthansa ground staff walked off the job, while on Wednesday cabin crew voted to strike as they sought a 15 per cent wage increase, a potential harbinger of further profit erosion. The strikes are likely to contribute to a larger-than-expected operating loss in the first quarter of 2024, the company said, with the second and third quarters set to be strong.

Shares were down 1.4 per cent at 0922 GMT. Despite the flat operating result expected in 2024, the company said its results were strong enough to propose issuing a dividend of 0.30 euros a share, to be voted on at the annual general meeting on May 7. The group has not issued a dividend since 2019. The results come almost two weeks after the airline announced the surprise departure of Steenbergen, which knocked its share price and rattled investor confidence.

Operating profits for 2023 were up 76 per cent from 1.5 billion euros ($1.63 billion) in 2022. Revenues of 35.4 billion euros ($38.58 billion) were up almost 15 per cent but were lower than the 36.3 billion euros expected in a company-issued poll.

CAPACITY

Analysts pointed to Lufthansa's slower growth in capacity compared to its rivals, with the group struggling with some plane groundings tied to RTX's Pratt & Whitney engine issues. "We continue to see a more cautious pace of capacity restoration at Lufthansa versus other European peers," Bernstein analyst Alex Irving said.

The carrier's shares have outperformed European rival flag carriers Air France-KLM since early 2022 as the region's travel industry recovered from disruption caused by the global COVID-19 pandemic. Last week, results from Air France and British Airways owner IAG put the spotlight on challenges for the industry from high prices of jet fuel, to geopolitical flashpoints, problems at plane makers and wage talks. Lufthansa shares trade at five times forecast earnings over the next 12 months, compared to four times for IAG and three for Air France-KLM.