Lufthansa trades higher after returning to operating profit in 3Q

BY OLIVIA BUGAULT | UPDATED NOV 03, 2021 05:59 AM EDT

Deutsche Lufthansa AG is trading higher on Wednesday after it swung to a positive adjusted operating profit for the first time since the beginning of the pandemic as bookings rose and it continues to restore capacity.

At 0921GMT, shares at Lufthansa are 5.4% higher at EUR6.22.

“At the end of the third quarter, new bookings had already reached around 80% of the 2019 level," the company said. Recovery in business travel--an important source of profit for the company--as well as increasing long-haul demand are boosting bookings, helping the airline to recover from more than a year of weak activities and heavy losses due to the coronavirus pandemic.

The planned reopening of the EU-U.S. route on Nov. 8 for vaccinated European travelers led to a recent “boom in demand," showing that bookings are returning quickly once travel restrictions are eased, it said.

On the back of these trends, Lufthansa plans to continue to ramp up capacity with a target of more than 70% of 2019 levels for 2022.

The German carrier said it targets capacity of roughly 65% of pre-pandemic levels for the first quarter of 2022, with a ramp up to about 80% for next summer and the second half of 2022. It also said it still expects capacity of around 60% of 2019 levels for the fourth quarter and about 40% for the full year.

For the last three months of the year, Lufthansa targets positive earnings before interest, taxes, depreciation and amortization, which should prevent operating cash drain during a quarter that is typically more challenging for airlines, it said.

The airline booked a third-quarter adjusted earnings before interest and taxes, also referred to as operating profit, of EUR17 million ($19.7 million), the first time it turned positive since the pandemic began, the company said. Excluding restructuring costs, adjusted EBIT was EUR272 million.

Its European peer Air France-KLM, which reported third-quarter results last week, also returned to a positive operating result during the July-September period for the first time since the crisis started.

“Lufthansa arguably faces a tougher battle, given its higher reliance on corporate travel than Air France’s more leisure-centric network," Bernstein said.

Revenue at Lufthansa rose to EUR5.21 billion from EUR2.66 billion, and adjusted free cash flow was positive at EUR13 million.

Net loss stood at EUR72 million compared with a loss of EUR1.97 billion a year earlier, it said.

Lufthansa made further progress in its restructuring plan and “measures have already been implemented that will eliminate costs of around EUR2.5 billion annually," it said. The company previously said it was targeting costs savings of roughly EUR3.5 billion by 2024 compared with 2019 in order to return to profitability and stop burning cash. It has therefore already achieved more than 70% of the planned savings, it said.

“However, there is as yet no news on agreement with German pilots, a key outstanding area with significant cost implications, and one where the group has previously outlined an idea to move to hours that flex with production in the recovery," Bernstein said.