Lufthansa Implements Cost-Cutting Strategies Amid Financial Struggles

Lufthansa is enacting stringent cost-control measures to manage escalating expenses and diminishing revenues, according to insights from an internal communication obtained by Handelsblatt. The memo, penned by Lufthansa CEO Jens Ritter, underscores the inadequacy of prior measures meant to stabilize earnings for the current year.

In a proactive move, the airline is set to curtail costs across various departments. Ritter’s announcement specifies a reduction in material costs by 20% in administrative sectors and a 10% cut in marketing expenditures. Additionally, the company will not fill vacant administrative positions and will scale back on vacation and flexi-time benefits by the year’s end. A pause on non-essential projects is also planned to allow a sharper focus on pivotal operational needs.

Despite these efforts, Lufthansa confronted a significant operating loss of EUR640 million ($696 million) in the first quarter of 2024. This loss is part of a broader financial downturn within the Lufthansa Group, which reported a nearly EUR850 million ($924 million) loss in the same period. The losses have been compounded by multiple strikes and ongoing wage disputes, further straining the financial framework of the airline.

Ritter’s letter also reveals a precarious balancing act in managing ticket prices, which after a 23% hike over the past two years, have begun to stabilize, adversely affecting revenue growth. The competitive pressure on key international routes, alongside escalating operational costs due to substantial wage agreements, further complicates the financial landscape.

The airline’s dependency on business travelers remains high, though numbers are still recovering post-pandemic. There has been an uptick in leisure travel, but this is mainly concentrated in the summer months, offering little relief for seasonal fluctuations.

Despite current challenges, Lufthansa Group remains hopeful for a financial rebound in the latter half of the year, projecting an adjusted EBIT of around EUR2.2 billion ($2.3 billion) for the full year. However, the company has issued a caution regarding the ongoing geopolitical tensions in the Middle East and other regions, which may impact its financial outlook for the remainder of the year.