Deutsche Lufthansa AG
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- Deutsche Lufthansa AG
Lufthansa Aviation Center
60546 Frankfurt / Main
Ph: +49 69 696 28010
Swiss Global Air Lines
Deutsche Lufthansa AG is a global aviation group which operates in five primary business segments: Passenger air transport, logistics, MRO, catering and IT services. Originally established in Jan-1926, Deutsche Lufthansa AG maintains its Corporate headquarters in Cologne, Germany while several departments are located in the Lufthansa Aviation Center at Frankfurt Airport. The company is listed on the Frankfurt Stock Exchange (FWB: LHA).
Although Lufthansa is involved in a range of industry segments, its core business is the provision of passenger air transport services, with the collective passenger airline group accounting for over two-thirds of the company's total revenue. These services are delivered through its numerous airline subsidiaries.
Deutsche Lufthansa AG holds majority stakes in a number of airlines including:
- Deutsche Lufthansa AG (100%, since 1954)
- Lufthansa CityLine GmbH (100%, since Mar-1992)
- Lufthansa Cargo AG (100%, since 1994)
- Air Dolomiti S.p.A. (100%, since Jul-2003)
- Eurowings Luftverkehrs AG (100%, since 1-Apr-2004)
- Eurowings Europe GmbH (23-Jun-2016)
- Swiss International Air Lines (Swiss Global Air Lines) (100%, since 1-Jul-2007)
- Edelweiss Air AG (100%, since Nov-2008)
- Germanwings GmbH (100% since 1-Jan-2009)
- Austrian Airlines AG (100%, since Sep-2009)
- Tyrolean Airways Tiroler Luftfahrt GmbH (merged with Austrian on 01-Apr-2015)
Deutsche Lufthansa AG also holds minority stakes in a number of airlines including:
- SunExpress (50%, since Apr-1990)
- Brussels Airlines (45%, since 15-Sep-2008)
- Aerologic GmbH (50%, since 19-Jun-2009)
Lufthansa share price
429 total articles
Pilot strikes at Lufthansa. Again. A strike ballot among British Airways cabin crew. A guilty verdict for Air France workers who assaulted an executive during a union protest. These were all headlines in late Nov-2016, following Air France pilot and cabin crew strikes in summer 2016. Labour relations at Europe's three biggest legacy airline groups are an ongoing challenge.
A CAPA report in Jun-2016 highlighted the growing number of articles on CAPA's website mentioning the word 'strike'. It raised the possibility that if the rate continued through the year, 2016 could be the biggest year for strike-related articles since before the global financial crisis. With a little under a month still to go, this year has already comfortably passed this milestone.
To a large extent labour unrest grows as airline industry profits increase. However, rather than hoping for an industry downturn to reverse the rise in the cycle of strikes, airline CEOs are talking tough – a line long taken by IAG's Willie Walsh. Lufthansa's Carsten Spohr has said that taking on the pilots is "about the future of Lufthansa", noting that it has “no chance of survival" if it gives in to pay demands (Bloomberg, 24-Nov-2016).
IAG's Capital Markets Day on 4-Nov-2016 was the first since its formation in 2011 when it lowered any of its medium term financial targets. It cut its 2016-2020 average EBITDAR goal, in spite of adding in Aer Lingus for the first time. This followed two cuts to 2016 operating profit guidance during the course of this year, as a result of "a tough operating environment". It has been hit by adverse currency movements, mainly resulting from the UK's Brexit vote, in addition to ATC strikes and terrorist events.
To its credit, IAG has responded to the more challenging trading conditions by lowering its planned capacity growth and capital expenditure during its 2016-2020 strategic plan. These steps are necessary if it is to have a chance of meeting its ambitious goal to sustain a 15% return on invested capital. This target is unchanged, despite the lower profit outlook.
In 3Q2016, IAG's rolling four quarter return on capital fell, after rising more or less continuously since it began to target this measure in 2013. It has consistently been more profitable than either of its two main European legacy airline group rivals (Air France-KLM and Lufthansa). Nevertheless, the downward step highlights the challenge in meeting its own demanding target.
Ryanair and Fraport announced on 2-Nov-2016 that the Irish ultra-LCC will open its 85th base at Frankfurt Airport, Lufthansa's main hub. Ryanair will base two aircraft at the airport and launch four new leisure routes in Mar-2017. With a daily departure to each of Alicante, Faro, Malaga and Palma de Mallorca, it expects to attract 400,000 passengers pa.
Although Ryanair has been increasing its primary airport presence for some time, CEO Michael O'Leary had previously said that Frankfurt Airport was one of the few, alongside London Heathrow and Paris CDG, that Ryanair would not serve. Frankfurt was seen not only as too expensive, but also as too congested for Ryanair's short turnaround times. Details of Ryanair's agreement with Frankfurt Airport have not been disclosed, but it is likely that the airline has secured favourable terms in return for traffic growth targets.
Ryanair's move into Frankfurt is relatively small compared with its operations in Berlin Schoenefeld and Cologne/Bonn, but this development supports its growth ambitions in Germany. Ryanair's average revenue per passenger is half that of Lufthansa's network airlines. Its move increases the competitive pressure on Germany's national airline.
Qatar Airways turns 20 in 2017. The once tiny regional airline has become a global powerhouse and is reshaping oneworld, the alliance to which it belongs. Qatar has stakes in IAG and LATAM, and Qatar Airways CEO H.E. Akbar Al Baker has told CAPA that in the near future he expects Qatar to make acquisitions in two additional airlines, aside from Meridiana. He said the additional airlines would be successful airlines, as "We are not going to collect crap".
Strategic partnerships without equity are important; Mr Al Baker hopes American Airlines will cease its partnership with Etihad Airways and work solely with Qatar Airways, even forging a multilateral JV anchored around American, British Airways/IAG and Qatar. Qatar is heading towards a fleet of 250 aircraft in 2-2.5 years' time. Mr Al Baker expects recently ordered 787-9s to replace 787-8s, while an LoI for 737 MAX 8s will be to replace Qatar's A320s and grow that fleet.
Air France-KLM, Lufthansa & IAG: 3Q2016 results may signal a cyclical peak in Europe airline margins
Air France-KLM, Lufthansa Group and IAG collectively reported a fall in operating profit and operating margin in 3Q2016, after growth in 1H2016. Individually, only IAG avoided a decline in its operating margin. IAG also remained the most profitable, and Air France-KLM the least profitable, in the most important quarter of the year.
The margin contraction in 3Q resulted from a bigger fall in unit revenue relative to 1H, without a matching fall in unit cost (in spite of lower fuel prices). Passenger unit revenue fell by 6% to 7% for all three (adjusted for currency movements), with long haul markets especially weak. Unit revenue was particularly soft on routes to Asia Pacific and on the North Atlantic (and, for Lufthansa Group) on the South Atlantic.
The combined operating margin of the three has been a good indicator for European airlines overall in the past. The outlook for FY2016 for each still suggests that there will be margin improvement for the year as a whole. This could be in line with, or slightly above, the cyclical peak reached in 2007 – before the global financial crisis. Against this backdrop, the decline in margin in 3Q2016 suggests that further improvement may be difficult in 2017.
As the US-Gulf airline dispute loses momentum with the American government, the big Middle East aeropolitical debate will now shift across the Atlantic to Europe, where the European Commission has a mandate to try to negotiate an open skies agreement with Qatar and the United Arab Emirates, as well as other countries/blocs, including Turkey and ASEAN.
Qatar Airways CEO H.E. Akbar Al Baker gave a keynote presentation at the recent CAPA-ACTE Global Aviation Summit in Amsterdam and addressed the subject of the EU mandate. Mr Al Baker called for unquestionable third and fourth freedom liberalisation and eventual fifth freedom liberalisation. The devil as always is in the detail; the non-EU airlines in the negotiations are sceptical about how the EU will define a "fair competition" clause, and whether it will be left abstract enough that "fair competition" could potentially be used against airlines in a way they have not envisaged. The Brexit referendum could result in the EU negotiating side losing the UK, whose liberal views have balanced those of the more protectionist France and Germany.