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Rising instances of airport employee strikes are expected to weigh on Lufthansa's earnings growth in 2024, prompting the German airline to cut its full-year forecasts on margins.
The Frankfurt-based company said on Thursday it expects adjusted operating profit for the year to remain flat at 2.7 billion euros and lowered its guidance on adjusted operating margins to 7.6 percent, from a previous forecast of 8 percent.
This came at a time when most flights from Frankfurt were halted on Thursday and Friday due to strikes by the German Verdi union after wage negotiations faltered for about 25,000 ground employees at the airport. Unionized flight attendants at Lufthansa also voted on Wednesday to go on strike in the future.
Airlines have struggled to attract staff after widespread layoffs when flights ground to a halt during the pandemic. Demand for flying has now returned, allowing airlines to raise prices significantly – but Lufthansa workers have complained that they are not getting their share of recent business improvements, despite persistent staff shortages causing unusually high workloads.
Lufthansa's human resources chief, Michael Nigeman, on Thursday criticized unions, saying the strikes were “hurting our guests” as the company faced costs from needing to invest in fuel-efficient aircraft, new seat and cabin interior designs, and better digital services.
During previous strikes at Frankfurt Airport, approximately 1,000 Lufthansa flights were canceled daily.
Net profits at the carrier doubled to 1.7 billion euros in 2023 with revenues increasing by 15 percent to 35.4 billion euros. The company proposed a dividend of 30 cents per share — the first since a pre-pandemic year in 2019.
The results cap a mixed set of profits for the three leading European long-haul airline groups, all of which have benefited from the travel boom over the past 12 months. High-paying vacationers took up business and first class seats to offset a decline in corporate travel after the pandemic.
But Lufthansa, Air France-KLM and International Airlines Group have faced persistent questions from analysts and investors about whether the current high fare environment can continue throughout the rest of the year, especially as more planes are put in the sky.
Analysts at Bernstein warned that revenues – an alternative to airline tickets – “appear to have declined slightly” at Lufthansa, reaching 22 per cent above 2019 levels in the fourth quarter, down from 25 per cent higher in the second quarter.
Last week, British Airways owner IAG reported record full-year profits, saying fares were “holding up well.” Air France-KLM also posted strong full-year profits but swung to a loss in the fourth quarter due to higher costs and geopolitical uncertainty.
“We think this is a reasonable update from Lufthansa… It looks more solid than Air France-KLM, with the capacity plan intact, and like IAG, there is conviction that the respectable profit and cash generation levels of 2023 can be replicated on… Wide range in 2024.
Elsewhere, Australia's Qantas and Singapore Airlines both recently warned of pressures on prices, even as travel demand continues to show no sign of slowing.
