Lufthansa Sees Delayed Recovery After Record Annual Loss

(Bloomberg) -- Deutsche Lufthansa AG struck a more pessimistic tone after reporting the biggest loss in the airline's history, saying it might need until the middle of the decade to recover from the coronavirus pandemic that's ravaged the industry.

Europe's biggest airline group warned Thursday that it may be able to operate only 90% of its pre-pandemic capacity by then, a sign of deteriorating confidence in a revival after Lufthansa previously suggested the market could recover fully by 2024.

Lufthansa will struggle to make money on flights before the end of this year as it dials back capacity plans. Planes more than 25 years old may be decommissioned, adding to dozens of earlier retirements. Chief Executive Officer Carsten Spohr said there could still be a revival of passenger traffic this summer, but only if enough vaccines are given.

“We need more-practical solutions to overcome the restrictions we currently have,” Spohr said in a Bloomberg Television interview. “We expect demand to pick up again as soon as restrictive travel limits are reduced by a further rollout of tests and vaccines.”

Lufthansa shares fell as much as 4.2% and traded 3.4% lower at 12.47 euros as of 4:30 p.m. in Frankfurt. The shares have advanced 14% this year after losing a third of their value in 2020.

Long-Haul Slump

Network carriers like Lufthansa have seen the long-haul markets on which they depend almost wiped out by the pandemic. These routes, which rely heavily on business travel, are expected to be among the last to recover.

Lufthansa said it's able to rush back as much 70% of capacity in short order if demand picks up. It's also expanding its low-cost long-haul business to target a revival in tourism while corporate travel is dormant.

But more progress needs to be made on restructuring at the sprawling airline group, especially at the main German brand, Bernstein analyst Daniel Roeska wrote after the company posted a record 6.7 billion-euro ($8.1 billion) annual loss.

“While we can see tangible progress on labor in Swiss, Austrian, Brussels and Eurowings,” Roeska wrote, “Lufthansa mainline is still stuck at step 1 here with crisis agreements only. More needs to happen – and faster.”

Vaccine Delays

Lufthansa's reassessment of the hoped-for rebound comes with travel still largely locked down and the European Union struggling to accelerate Covid-19 vaccine rollouts after a sluggish start.

It echoes recent concernss spanning the International Air Transport Association, which said last month airlines could burn through $95 billion this year, almost double the previous forecast, to planemaker Airbus SE, which unexpectedly forecast jet handovers will remain at 2020's depressed levels.

Lufthansa now expects to deploy between 40% and 50% of its 2019 capacity levels this year, according to a statement, compared with a previous target of 40% to 60%. That's bad news for profitability, given that it needs to operate with around half of available capacity to stem cash outflows.

Redburn analyst James Goodall said that estimate of the break-even point may in itself be “too ambitious” given that almost 60% of the carrier's revenues come from business traffic.

Short-haul leisure specialists such as Ryanair Holdings Plc and EasyJet Plc may reap a earlier rebound, especially if a faster vaccination rollout in the U.K. allows Britons to make a more rapid return to Mediterranean beaches.

The European Union is three or four months away from issuing coronavirus immunity certificates, raising the prospect of another lost tourism season for the bloc's aviation and hospitality industries, according to a briefing note circulated to national delegations in Brussels on Tuesday.

German Stake

Lufthansa said it cut capital spending by two-thirds in 2020, after full-year revenues dropped 63%. The outlay on aircraft will shrink in future years as it cuts the fleet to 650 planes by 2023 from more than 750 at the end of last year.

A delayed recovery raises the prospect of the German state retaining a major holding in Lufthansa for longer if it renders the carrier less able to repay borrowings. Lufthansa has tapped the government for 9 billion euros, handing over a 20% stake in the company.

Davy Stockbrokers analyst Stephen Furlong said the airline now faces faces “a long and painful process.” of restructuring and deleveraging.

©2021 Bloomberg L.P.