With the global roll out of vaccination programs and progressive easing of travel restrictions, the Lufthansa Group projects to generate positive cash flow by the second quarter of 2021, after reporting a significant increase in bookings across the group’s airlines.
According to a press statement released on June 14, 2021, the group forecasts to operate at a 40% capacity of 2019 operations. Booking levels recorded in May and early June 2021 were double those recorded in March and April 2021, supported by strong leisure demand for European destinations around the Mediterranean Sea, and long-haul markets with limited to minimal travel restrictions.
The group expects passenger numbers to reach 30% of pre-pandemic volumes in June, following with an approximate 45% in July and close to 55% in August.
After recording a €1.1 billion ($1.3 billion) loss in the first quarter of 2021, the Lufthansa Group targets to reach adjusted earnings before interest and taxes (EBIT) margin of 8% by 2024. This can be attributed to the group’s restructuring which is estimated to save up to €3.5 billion ($4.2 billion) by 2024.
By 2023 and 2024 the group projects annual capital expenditure of €2.5 billion ($3.0 billion) in comparison to €3.6 billion in 2019.
The group’s personnel workforce, previously recorded at 138,000 staff at the end of 2019, fell by 26,000 employees since the start of the pandemic. Staff cost savings are expected to reach approximately €1.8 billion ($2.1 billion) by 2023. A further reduction of 10,000 employees is expected in Germany.
Alongside the restructuring plan, improvement towards operational efficiency will include establishing synergies through the “harmonization of aircraft maintenance, digitalization and cloud migration of steering and planning functions, and a 50% reduction in operated IT systems for flight and ground operations, to obtain a simplified and streamlined organization,” Lufthansa (LHAB) (LHA) says.
A 30% reduction in office space and restructuring of key supplier contracts and reductions to external consulting and marketing expenses are expected in the group’s plan.
Lufthansa to axe SunExpress Deutschland operations
Lufthansa’s (LHAB) (LHA) restructuring plan includes further cutbacks of the group’s airlines. First, the group plans to close down all operations of its affiliate SunExpress Deutschland. The airline company also plans to discontinue the remaining Germanwings operations. Initially, Lufthansa (LHAB) (LHA) announced the closure of its low-cost arm that had operated under the Eurowings brand since March 2018 in July 2020.
At that time, the company said Germanwings closure would help simplify the group’s operations.
Multiple closures of Lufthansa (LHAB) (LHA) bases and sites are also expected going forward, the company warned in the statement.