Lufthansa plans compulsory lay-offs as forecasts travel slump to 2024

Monday, 10 August 2020 00:28 - - {{hitsCtrl.values.hits}}

Airplanes of German carrier Lufthansa are parked at the Berlin Schoenefeld airport, amid the spread of the coronavirus disease (COVID-19) in Schoenefeld, Germany - Reuters

BERLIN, REUTERS: Lufthansa put German workers on notice of compulsory lay-offs last week, saying tumbling air travel and slow progress in union negotiations meant cuts were unavoidable after it lost EUR 1.7 billion in a single quarter.

The German airline, which secured a EUR 9 billion state bailout in June, flew just 4% of prior-year passengers between April and June as a result of the COVID-19 pandemic and expects capacity to increase to only around 50% by the end of the year and two-thirds of last year’s level in 2021.

Its outlook is more pessimistic than rivals such as Air France-KLM, which expects to fly 80% of its pre-crisis flights next year, and British Airways and Iberia owner IAG , which forecasts capacity to be 24% lower in 2021.

Tentative signs of a European recovery have been undermined by new localised outbreaks and restrictions, while long-haul flights such as to the United States – which are important for Lufthansa – remain largely grounded due to rising infections.

Lufthansa Chief Executive Carsten Spohr said he does not expect demand for air travel to return to pre-crisis levels until 2024, echoing a forecast last month by the International Air Transport Association (IATA).

The airline, which has already announced plans to cut 20% of its leadership positions and 1,000 administrative jobs, said it had run out of patience in talks with unions.

It aims to reduce 22,000 full-time jobs and said it had 8,300 fewer employees by the end of June, due mainly to people leaving jobs at its catering business and non-German businesses, which include Swiss, Austrian Airlines and Brussels Airlines.

The sharp drop in passenger numbers pushed Lufthansa to a quarterly adjusted operating loss of EUR 1.7 billion, the worst performance in its 65-year history.

That was EUR 300 million lower than the average analyst forecast in a company-compiled consensus, boosted by a strong performance in its cargo business which gained from a shrinkage in global air freight capacity.

Lufthansa plans to cut capital expenditure to EUR 1.3 billion this year and next, below the levels of Air France-KLM and IAG.

And it expects to burn through around EUR 400-500 million in cash per month for the rest of the year and hopes to get back to positive free cash flow in the course of 2021.

Bernstein analysts described the results as “the first step on a long journey back”.