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Lufthansa Group announces medium-term targets, makes preparations for capital increase

Lufthansa Group announces medium-term targets, makes preparations for capital increase
Lufthansa Group announces medium-term targets, makes preparations for capital increase
Written by Harry Johnson

Structural transformation across the Lufthansa Group to yield significant cost savings, supporting future profitability and cash generation.

  • Bookings across the Group’s airlines have increased significantly.
  • Demand is particularly strong for European leisure destinations around the Mediterranean Sea.
  • Lufthansa Group expects operating cash flow to be positive in the second quarter of 2021.

As the roll-out of vaccination programs accelerates and with travel restrictions being progressively eased globally, bookings across the Group’s airlines have increased significantly. Compared to average weekly levels in March and April 2021, bookings more than doubled in May and early June. Demand is particularly strong for European leisure destinations around the Mediterranean Sea, as well as leisure long-haul markets where there are only limited or no travel restrictions. Supported by the acceleration of bookings, the Group expects operating cash flow to be positive in the second quarter of 2021. The number of passengers is projected to reach around 30% of pre-crisis levels in June, to reach approximately 45% in July and around 55% in August. This positive trend supports the Group’s forecast to operate approx. 40% of 2019 capacity levels in 2021.

Structural transformation across the Group to yield significant cost savings, supporting future profitability and cash generation

Since the beginning of the crisis, the Lufthansa Group has taken decisive action to strengthen liquidity and to accelerate the Group’s structural transformation. Key restructuring actions include adapting the Group’s cost base and operating model to ongoing changes in our market, thereby positioning the Group to capitalize on growth in the “New Normal”.

The Group’s restructuring program targets achieving gross savings of approx. EUR 3.5 billion by 2024 (compared to 2019), of which around half are expected to be implemented by the end of 2021. Costs are expected to decline across the Group’s airlines (notably low- to mid-single-digit reduction of CASK (excl. fuel) by 2024 compared to 2019 levels), the Aviation services and in Group overheads. The main drivers for these improvements are (i) reductions in personnel cost, (ii) operational simplification and overhead reduction and (iii) fleet modernization and standardization.

Personnel cost savings are expected to reach approx. EUR 1.8 billion from 2023 onwards, of which around half  has already been achieved through a reduction of almost 26,000 employees since the start of the crisis. In Germany, the Group plans to reduce personnel costs through a combination of collective agreements, voluntary departures and forced dismissals, equivalent in cost terms to a headcount reduction of up to 10,000 positions.

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Operational simplification measures include the closure of SunExpress Deutschland, the discontinuation of passenger flight operations at Germanwings and the closure of multiple other bases and sites. Improvements in operational efficiency include generating additional synergies from the harmonization of aircraft maintenance and other operational processes, digitalization and cloud migration of steering and planning functions and an approx. 50% reduction in operated IT systems for flight and ground operations, resulting in a simplified and streamlined organisation. Reduction in overhead and other costs includes an approx. 30% reduction of office space, renegotiation of key supplier contracts and reductions in external consulting and marketing expenses. Ongoing fleet modernization and standardization will further contribute to the reduction of operating costs through improved fuel efficiency, as well as lower maintenance and training costs. In addition, this will contribute to the Group’s target of reducing its net carbon emissions by 50% over the next decade.

During the recovery phase, capital expenditure will be capped at D&A levels, with a projected EUR 2.5 billion in annual capex spending in 2023 and 2024. This is circa EUR 1.1 billion lower than in 2019 and will support the generation of strong free cash flow going forward.

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About the author

Harry Johnson

Harry Johnson has been the assignment editor for eTurboNews for mroe than 20 years. He lives in Honolulu, Hawaii, and is originally from Europe. He enjoys writing and covering the news.

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