By Ilona Wissenbach and Joanna Plucinska FRANKFURT/LONDON (Reuters) -Lufthansa's CEO last year described the German airline group's flagship carrier as a "problem child". Now, despite a turnaround
Lufthansa Aims to Overcome Image as Europe's Airline Underperformer
Lufthansa's Strategic Changes and Challenges
By Ilona Wissenbach and Joanna Plucinska
Cost-Cutting and Operational Improvements
FRANKFURT/LONDON (Reuters) -Lufthansa's CEO last year described the German airline group's flagship carrier as a "problem child".
Investor Reactions and Market Outlook
Now, despite a turnaround plan, that label is proving hard to remove.
Challenges Ahead: Strikes and Supply Chain Issues
Although Carsten Spohr is trying to change things with cost-cutting, centralising operations and streamlining a complex fleet, the group, which reports third quarter earnings on Thursday, has slipped further behind Air France-KLM and British Airways owner IAG.
Lufthansa stock has inched higher, but shares in IAG and Air France-KLM have risen by 92% and 15.7% respectively. Meanwhile, its group operating margin narrowed to 4.4% last year, down from 7.6% in 2023, with analysts predicting 4.8% for 2025.
"We definitely lagged behind some of our competitors when it comes to financial performance, and also, until this summer, we lagged behind operational performance," Spohr said last month.
The changes Lufthansa is making, such as a 20% cut to administrative jobs and retiring old planes, should help it hit an 8% to 10% operating margin between 2028 and 2030.
"Lufthansa is a 'show-me story'", said Ingo Speich, head of corporate governance at Lufthansa investor Deka Investment, adding: "It still has to show that it can achieve its targets".
'LUFTHANSA IS FOCUSED ON THE RIGHT THINGS'
Investors and analysts said Lufthansa was trying to move in the right direction.
"Lufthansa, to its credit, is focused on the right things: namely, driving productivity up, and cost out," said Bernstein analyst Alex Irving.
Its new plusher Allegris cabin means it can maximize premium seat and product sales, driving more revenue as Boeing deliveries with the format finally land after a long delay.
A decision to cut 4,000 administrative positions over the next five years was also well-received by the market.
However, Lufthansa's plans could get sidetracked as it battles more urgent and pressing fires, like supply chain snags on its long-awaited Boeing jets and tough union negotiations.
Lufthansa announced two profit warnings last year as strikes caused costs to spiral, hampering plans to widen its margin. It has yet to reach a deal with its pilots' union and the threat of possible strike talks still looms.
"We think (the) outlook will dominate results given the potential for a pilots' strike," said UBS analyst Jarrod Castle.
GOOD LONG-TERM STRATEGY; WEAKNESS IN EXECUTION
Lufthansa also wants to streamline its complex structure, which includes six hubs and nine passenger airline brands ranging from ITA Airways to Eurowings.
"This multitude of brands is confusing for customers and apparently hard for management to control," Hendrik Schmidt, a corporate governance expert at German asset manager DWS, said.
Global headwinds are also rising, including an expensive U.S. government shutdown that has hit the airline sector and softness in transatlantic travel.
Deka's Speich is in two minds over the outlook.
"Lufthansa is (a) contradictory company. On the one hand, the long-term strategy is right," Speich said, adding: "On the other hand, there has been weakness in execution in the past".
(Reporting by Joanna Plucinska and Ilona Wissenbach; Editing by Adam Jourdan and Alexander Smith)
