Deutsche Lufthansa AG said first-quarter earnings at its air cargo division fell as global freight rates declined, denting a continued recovery in demand for summer tourism travel.
(Bloomberg) — Deutsche Lufthansa AG said first-quarter earnings at its air cargo division fell as global freight rates declined, denting a continued recovery in demand for summer tourism travel.
Adjusted earnings before interest and taxes at the cargo division fell to €151 million ($166 million) in the period, down from €495 million for the same period a year earlier, the airline group said in a statement.
The stock fell as much as 6.5% in Frankfurt. Alex Irving, analyst at Bernstein, said the drag was due to a weaker performance in cargo as supply chains normalize, while the passenger business continued to experience high yields. The cargo division made a record contribution in 2022, driven by soaring freight rates that stemmed from pandemic disruption to sea ports and increased consumer spending on shipped items.
Lufthansa said high demand for summer flights will help mitigate the continued decline in earnings from cargo, with tourist travel to Spain and city breaks proving popular. Adjusted earnings before interest and taxes this quarter will surpass the €754 million ($831 million) achieved in the same period in 2019, it said.
The German company is the first of Europe’s big three network airlines to report earnings, providing an upbeat preview of the early summer months — the crucial travel period for the aviation industry. Having lost billions during the pandemic, carriers are looking to boost earnings by restricting capacity, allowing them to pay down debt incurred during the pandemic even as inflation raises costs.
Long-Term Targets
The strategy is helping offset the cargo decline at Lufthansa. The German airline said its first-quarter adjusted operating loss fell by more than half to €273 million from a year earlier, helped by lower outflows at its namesake airline brand. Revenue rose 40% to €7 billion, missing estimates that had predicted sales of about €7.53 billion.
Lufthansa stuck to its guidance for a further significant improvement in adjusted EBIT in 2023. It also said it expects capacity to increase to about 85% to 90% on average in 2023 compared with 2019.
Given the upbeat outlook for travel, the airline said it’s “expected to make significant progress towards achieving the targets set for 2024,” when Lufthansa wants to achieve an adjusted operating margin of at least 8% and adjusted return on capital employed of at least 10%.
“The continuously strong demand gives us confidence for the coming months,” Lufthansa Chief Financial Officer Remco Steenbergen said in the statement. “The summer travel season will provide a major contribution to achieving our targets for 2023.
(Updates with more details on carg division from first paragraph)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.