Germany Begins Selling Lufthansa Stake Despite Challenges Ahead
Germany was one of the first European countries to step up and support its national airline Lufthansa as the Covid-19 pandemic devastated air travel in 2020. Part of that deal included taking a 20 percent stake in the carrier in exchange for billions of euros in taxpayer funds.
Now, more than a year on, the German Finance Agency will begin selling down that stake. It plans to sell up a 5 percent share in Lufthansa — a quarter of its holdings — over the next several weeks, the agency said Monday. And why the sale amid Delta variant and other recovery concerns? The agency cited positive developments in Lufthansa’s recovery.
Lufthansa Group reported financial improvements from the first to second quarter. Its net loss of €756 million ($890 million) was a roughly €400 million improvement from the March quarter. Revenues increased a quarter while expenses only rose 13 percent. And all-important cash burn decreased to €198 million a month during the June period; a €37 million improvement over the first quarter. The airline forecasts positive cash flow in the third quarter.
“We are, hopefully, in the last phase of a pandemic that has hit our industry and our company,” Group CEO Carsten Spohr said putting an optimistic spin on the outlook on August 5. But in the same breath, he added that Lufthansa is “still missing more than half of our former business” — a gigantic hole that the airline still must climb out of to fully recover.
Citing pandemic uncertainties, executives declined to provide full year financial guidance for 2021 — except to expect a loss — or for 2022. Lufthansa executives continue to work towards €3.5 billion in annual cost savings that includes a dramatic pruning of its workforce; the group realized another 5,000 full-time redundancies in the second quarter leaving it with a target of just 5,000 more by 2024. And the airline is far from recovering its schedule with plans to fly just 60 percent of 2019 capacity by year-end and 70 percent next year.
In fact, the slow recovery has created an opening for competitors. Both Ryanair and Wizz Air, citing structural changes at competitors, plan to grow dramatically across the continent in the coming years. While these expansion plans focus mostly on warm-weather destinations and Italy for now, Germany’s sheer size make it an attractive market. EasyJet, for one, has used the crisis to invest in and expand its Berlin base.
The Lufthansa Group still has a ways to go. This is true no matter the quarterly financial improvements or optimistic tone set by Spohr and other senior executives. The U.S. — the group’s single largest international market — remains closed to Europeans and the Delta variant has created some new travel restrictions.Subscribe Now to Airline Weekly