Lufthansa in Germany paves the way for a leaner post-pandemic future

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Planes of the German airline Lufthansa are parked at the Frankfurt airport in Frankfurt, Germany on June 2, 2020. REUTERS / Kai Pfaffenbach

German Lufthansa (LHAG.DE) presented plans to return to profitability as a smaller, lighter airline with fewer planes after the pandemic, while banking on a capital increase to help it repay state aid.

Lufthansa was pushed to the brink by the coronavirus pandemic in 2020, when travel restrictions led to a collapse in air travel, forcing it to take 9 billion euros ($ 11 billion) in aid from Germany and its other countries of origin.

“The Lufthansa group is determined to accelerate its transformation in order to emerge stronger from the crisis,” Germany’s largest airline said in a statement on Monday.

Lufthansa said it aims to have an adjusted profit margin before interest and taxes (EBIT) of at least 8% and an adjusted return on capital employed (ROCE) of at least 10% by 2024. Its adjusted ROCE was -16.7% in 2020 and 6.6% in 2019.

The airline has said it aims to cut costs by € 3.5 billion by 2024 compared to 2019, the last year before the pandemic.

Plans call for a fleet that will be 20% smaller but more efficient, and a reduction of € 1.8 billion in personnel costs.

Investors greeted the plan cautiously, with stocks rising just over 1% in pre-market trading on Tuesday.

“Lufthansa (…) presented the most comprehensive and long-term outlook of any European airline to date,” said Daniel Roeska, analyst at Bernstein.

“We expect investors to greet today’s plan with an ounce of caution given the plan’s heavy reliance on reducing labor costs,” Roeska added.

Germany, which owns 20% of the company after last year’s bailout, will have to agree to the capital raising plan, full details of which have not yet been released.

At Lufthansa’s last general meeting in May, shareholders agreed to it raising up to € 5 billion in capital to help repay state aid. The company said at the time that it would not need the full amount.

($ 1 = 0.8240 euros)

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