The Coronavirus Effect – Turmoil for Lufthansa Group

By Ankur Deo | March 20, 2020

About two weeks ago, we had posted an article about the severity of the effect of coronavirus pandemic on aviation industry; and things have not got any easier since. Majority of the airlines are suspending operations due to lack of demand and safety reasons, and aviation industry all over the globe has nearly been brought to a standstill. In a recent report, the German giant ‘Lufthansa Group’ has confirmed a 95% capacity reduction to battle the coronavirus outbreak. 700 of Lufthansa’s 763 aircraft are grounded and according to the group, this is by far the worst crisis in the history of the airline.

Lufthansa Chief Executive Carsten Spohr said in a report:

‘At present, no one can foresee the consequences; we have to counter this extraordinary situation with drastic and sometimes painful measures.’

Lufthansa’s overall capacity has been reduced to 5% of the original plan for this time of the year. Lufthansa units Austrian Airlines, Brussels Airlines and Air Dolomiti have already declared that they shall be suspending operations. Lufthansa itself will discontinue long-haul flying from Munich, thereby, carrying long-haul flights only from their base in Frankfurt. Freight arm ‘Lufthansa Cargo’ continues to fly its regular programme, except for mainland China, meaning that its entire freighter fleet of seven Boeing 777Fs, six MD-11Fs and four 777Fs at AeroLogic is still flying.

Moreover, to combat the loss in revenue generation, the group is also considering the possibility of using passenger aircraft without passengers as pure cargo aircraft in order to increase cargo capacity. In an attempt to preserve cash, Lufthansa Group would not pay shareholders a dividend even after pocketing an operating profit of €2 billion ($2.2 billion) for 2019.

Lufthansa has parked nearly 90% of its fleet. ©DW

Lufthansa’s executive board members will waive 20% of their basic pay in 2020 and the company says it is looking at using aircraft financing to provide further liquidity to see it through the crisis. According to Credit Suisse, the group could make an operating loss of €1.5 billion this year and it also advocated for Lufthansa to lease aircraft as a way of improving its cash position over the coming months. While the situation looks and certainly is extremely grave, it is highly unlikely that a giant like Lufthansa will succumb to the pandemic.

Finance Chief Officer of Lufthansa, Ulrik Svensson, stated:

‘Lufthansa Group is financially well-equipped to cope with an extraordinary crisis situation such as the current one.’

What do you think about Lufthansa’s mitigation plan? Do you think Lufthansa will manage to escape this catastrophe unscathed? Let us know in the comments!

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