The first two quarters of 2020 have not been kind to airlines. Several carriers have been struggling financially, while many have succumbed to this cataclysm. German carrier Lufthansa has reported a gigantic loss for the first quarter of the year, losing about €2.1bn ($2.35bn) during the first three months of the year. The carrier stated that the coronavirus lockdown has significantly impacted its results and it does not expect to make profits for atleast another year or so.
During the first three months of year, passenger numbers are reported to have dropped by more than 30% as compared to same time, last year. Carsten Spohr, Chairman of the executive board of Lufthansa, stated:
‘Global air traffic has come to a virtual standstill in recent months. This has impacted our quarterly results to an unprecedented extent. In view of the very slow recovery in demand, we must now take far-reaching restructuring measures to counteract this.’
Lufthansa Group’s revenue in the first quarter fell by almost 18 percent to €6.4bn, compared to previous year, when it was €7.8bn. The Group also recorded impairment charges of €266mn on decommissioned aircraft, another €157mn on the goodwill of LSG North America and expenses on Eurowings, which costed further €57mn. All in all, Lufthansa Group ferried around 21.8mn passengers in the first quarter of the year – this count is less than 75 percent of the passenger load in the same quarter last year. Even though cargo business did not induce a loss as big as passenger business, freight capacity still fell by 15 percent, further increasing the Group’s losses for Q1.
Thorsten Dirks, Member of the Executive Board, Deutsche Lufthansa AG, stated:
‘We have succeeded in reducing fixed costs by one third within a short period of time. Nevertheless, in our operating business we are currently consuming around 800 million euros of our liquidity reserve per month.’
The carrier saw more than 98% decline in passenger loads in the month of April, as compared to 2019. Lufthansa Group also parked 700 aircraft from its fleet of 763 in the months of April and May, alongside shutting down ‘Germanwings’, its budget regional wing. Many airlines have stated that the aftereffects of the pandemic are yet to be seen, and travel demand will remain low for years to come. Lufthansa forecasts that even after international and domestic travel begins fully, nearly 300 aircraft shall still remain parked in 2021.
Analysts suspect that airlines will find it tough to survive post the pandemic even though they might have survived through it. Lufthansa’s loss for Q1 and its forecast for the next two years paints a similar picture. As the carrier gradually starts making money, it would definitely take years for it to return to the pre-pandemic level of revenue generation.
Even though losses for Q1 and possibly, Q2 of 2020, are inevitable for most airlines, do you think carriers are ready to sustain for months, and possibly years without making much profit? Let us know in comments!
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