Friday, June 21, 2024

Operational challenges limit the altitude for airline travel as demand climbs

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Lufthansa

In 2023, Lufthansa achieved improvements in both revenue and operating profits, which were driven primarily by the continued high demand for air travel. Throughout the year, Lufthansa Group’s airlines carried a total of 122.5m passengers, up 20.4% year-on-year. On average in 2023, the airline offered 84% of its 2019 capacity. The load factor increased by 3.1 percentage points to approximately 83%.

In 2023, Lufthansa’s revenues reached €35,422m, up 14.7% YoY. Its adjusted EBIT was €2,682m, up 76.4% YoY. The company’s adjusted EBIT margin improved to 7.6% in the full-year 2023 from 4.9% in the previous year. The results also benefitted from a strong performance from Lufthansa Technik, with demand for maintenance, overhaul and repair services remaining high. In the full-year 2023, Lufthansa generated adjusted free cash flow of €1.8bn, down from €2.5bn in the year prior.

In the first quarter of 2024, the company had a total revenue of €7,392m, up 5.3% YoY, and an adjusted EBIT loss of €849m (higher than -€273m in the first quarter of last year). During the reported quarter, Lufthansa’s operating expenses reached €9,011m, up 13.4% YoY, including staff costs of €2,254m, up 17.5% YoY. The airline mentioned that strikes weighed on its first quarter performance but that the outlook for the important summer season remains positive.

Lufthansa plans to increase available capacity in the second quarter of 2024 to 92% of its pre-Covid levels, which is lower than originally planned due to further investments in operational stability and delayed aircraft deliveries. In the second quarter of 2024, the company expects that adjusted EBIT will be below that of the comparable quarter in the previous year. For the full-year 2024, Lufthansa aims to achieve a capacity level of around 92% of its 2019 level. The company expects an improvement in operating profits year-on-year in the second half of 2024, with the full-year 2024 adjusted EBIT target at €2.2bn. During the current year, Lufthansa expects to generate adjusted free cash flow of at least €1bn.

IAG

In 2023, IAG experienced strong and sustained demand for air travel, in particular in the leisure and premium leisure travel segment. In 2023, the airline group had a capacity growth of 22.6% YoY, focused on the company’s core North Atlantic and South Atlantic markets. Overall capacity was at 95.7% of pre-Covid levels in 2019, including at 98.6% of the 2019 levels in the fourth quarter of last year. In the reported year, IAG’s passenger unit revenue was up 8.2% YoY, supported by the strong leisure and premium leisure traffic recovery, while business traffic saw a somewhat slower recovery. Non-fuel unit costs declined by 4.4% YoY due to the passenger capacity increase and cost saving initiatives, offsetting ongoing cost inflation and investments in customer offerings and systems, while fuel unit costs were up 0.7% YoY.

In 2023, the airline group had a total revenue of €29,453m, up 27.7% YoY, and an operating profit before exceptional items of €3,507m, up 181.2% YoY. The respective adjusted operating profit margin was 11.9% in the full-year 2023, up from 5.4% in the previous year. In the full-year 2023, IAG reported free cash flow of €1,320m, up from €979m in the full-year 2022.

In the first quarter of this year, IAG had total revenues of €6,429m, up 9.2% YoY, and operating profit before exceptional items of €68m (up from €9m in the first quarter of last year). The company noted that the first quarter results were underpinned by strong demand across the group’s airlines over the Easter holidays and in the core markets of North Atlantic, South Atlantic and intra-Europe. IAG’s management commented that the company was well-positioned for the summer, with high demand for travel remaining a continuing trend.

In terms of the outlook for 2024, IAG aims to continue to grow capacity by around 7% YoY and expects its non-fuel costs to increase slightly during the current year. The company also aims to generate significant underlying free cash flow during the year.

Ryanair

In late January, Ryanair released its results for its third quarter and nine months ending 31 December 2023. During the first nine months of its financial year, the airline’s traffic increased by 9.9% YoY, and its load factor was 94%, flat YoY. During the nine months to 31 December 2023, Ryanair had revenue of €11.3bn, up 26.2% YoY, and profit after tax of €2.2bn, up 38.6% YoY. The company had net cash of €0.15bn as of 31 December 2023.

In terms of outlook, the airline continues to target passenger traffic of approximately 183.5m customers in its full-year 2024 (ended 31 March 2024). Ryanair also noted that delays in aircraft deliveries cut its full-year 2025 traffic expectations to 200m (from 205m previously). The company targets profit after tax of between €1.85bn and €1.95bn for the full-year 2024.

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