Lufthansa shares surge as soaring air ticket prices bolster airline's revenues

By Louis Goss

Shares in Deutsche Lufthansa rallied Friday after the German airline said it expected bumper demand for air travel to continue into the fourth-quarter, following a record performance over the summer.

The Cologne-headquartered carrier (XE:LHA) late Thursday reported revenue surged 8% to a record EUR10.3 billion ($11 billion) in the third quarter, as an uptick in passenger numbers and higher fares boosted the company's bottom line.

Shares in Frankfurt-listed Lufthansa rose 7% on Friday, up 13% for the week, but down over 2% year to date.

The record revenues saw Lufthansa, Europe's second largest airline after low-cost giant Ryanair, meet analysts' expectations for net income of EUR1.6 billion, as it transported 38 million passengers, compared with 33 million in the third quarter of 2022.

Against the backdrop of a stagnant German economy, the airline is forecasting demand will increase to 91% of pre-COVID levels in the fourth quarter from 88% of prepandemic levels in the third-quarter. The firm said it has already received bookings from 80% of the passengers it expects to carry over the next three months.

"Even though the geopolitical situation remains challenging, our booking outlook gives us reason to be positive -- not only for a very good Group result this year, but also beyond," Lufthansa CEO Carsten Spohr said.

The airline also received a boost from higher air ticket prices, generating an extra 2% more revenues per kilometer traveled compared with 2022, and an extra 25% compared with 2019, on the back of surging travel costs since COVID-19.

The higher yields, in turn, offset a 14% increase in the airline's own costs, which were in large related to its November 2022 decision to increase pay for 19,000 cabin crew following negotiations with the flight attendants union.

An uptick in revenues from its airline segment offset a dip in for its maintenance arm, Lufthansa Technik, and plunging earnings from its cargo business, due to weak demand in both markets.

Lufthansa noted its third-quarter passenger numbers, which sat at 88% of pre-COVID rates, marked a 13% increase compared with 2022, and it now expects passenger numbers to return to 95% of pre-COVID levels in 2024.

Speaking to investors, Spohr, however, noted business travel has failed to recover at the same rates as private travel. He explained this will likely have a knock on effect regarding Lufthansa's performance in the fourth-quarter, due to the heavier reliance on business travel in the winter months.

-Louis Goss

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11-03-23 1044ET

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