Lufthansa drops 2024 operating margin target to 7.6% as costs rise

Lufthansa drops 2024 operating margin target to 7.6% as costs rise

Lufthansa reported on Thursday an operating profit of 2.7 billion euros ($2.94 billion) for 2023 as expected, adjusting its outlook for its 2024 operating margin down to 7.6% from a goal of 8% as it struggles with labour disputes.

The impact of strikes and a drop in logistics profits will lead to a higher expected operating loss in the first quarter than in earlier years, the German airline said, offsetting strong post-COVID travel demand.

"The group remains committed to its goal of generating a sustainable adjusted EBIT margin of at least 8 percent," the company said in a statement.

Europe's airlines have benefited from unprecedented demand after the pandemic, allowing them to raise prices, but higher labour and maintenance costs have limited earnings growth.

Lufthansa in particular has agreed to new, higher pay deals to end strikes, which analysts and investors say threatens its 2024 operating margin target.

On Wednesday, its cabin staff voted to go on strike as they seek a 15% wage increase, a potential harbinger of further profit erosion.

The results come almost two weeks after the airline announced the surprise departure of respected chief financial officer Remco Steenbergen, which knocked its share price and rattled investor confidence.

Operating profits for 2023 were up 76% from 1.5 billion euros ($1.63 billion) in 2022. Revenues of 35.4 billion euros ($38.58 billion) were up almost 15% over 31 billion euros ($33.79 billion) in 2022, but were lower than the 36.3 billion euros ($39.56 billion) expected in a company-issued poll.

DIVIDEND

Despite the adjustment in operating margin target, the company said its results were strong enough to propose issuing a divided of 0.30 euros a share, to be voted on at the annual general meeting on May 7.

The group has not issued a dividend since 2019.

The carrier's shares have outperformed European rival flag carriers Air France-KLM  and IAG since early 2022 as the region's travel industry recovered from disruption caused by the COVID-19 pandemic worldwide since 2020.

Last week, results from Air France and British Airways owner IAG put the spotlight on challenges for the industry from high prices of jet fuel, to geopolitical flashpoints, problems at plane makers and wage talks.

Lufthansa shares trade at five times forecast earnings over the next 12 months, compared to four times for IAG and three for Air France-KLM.