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By Joanna Plucinska and Ilona Wissenbach
LONDON/FRANKFURT (Reuters) – Lufthansa will meet its 2024 profit margin target as the German airline seeks to strike new, higher pay deals to end measures that have forced it to cancel thousands of flights, analysts and investors said.
The airline’s shares were among the best performers compared to rival European airlines Air France-KLM and IAG, as the region’s industry recovered from the devastating COVID-19 pandemic that closed borders and grounded planes around the world in 2020.
In 2021, the German organization unveiled an ambitious plan to return to profit, adding an adjusted profit margin before interest and taxes (EBIT) target of at least 8% and an adjusted return on contracted capital (ROCE) of at least 10%. in 2024.
But many airlines have struggled to hire staff, from baggage handlers to cabin crew, after leaving the industry. Rising energy and food prices have also boosted inflation.
As a result, companies have agreed to steep wage increases in recent years to attract workers.
Ongoing labor disputes at Lufthansa and service disruptions have jeopardized those profit margin targets.
Adjusted EBIT margins will fall to 6. 9% this year from an estimated 7. 4% in 2023, according to an analyst survey provided through the company. The airline could lower that target when it reports its effects for 2023 on March 7.
Lufthansa declined to comment ahead of its results.
Wages will also rise, as rivals Air France-KLM and BA owner IAG report the effects in 2023 on Thursday.
But Lufthansa is more engaged in costly disputes over hard work, analysts say.
“We, Lufthansa, are facing more demanding situations in trade relations than their European peers, due to the general climate of trade relations in Germany,” said Andrew Lobbenberg, an analyst at Barclays.
Last year’s deal with pilots charges Lufthansa an additional 700 million euros ($756. 98 million) through 2026, while the cockpit crew will vote on March 6 in favor of a strike to call for a 15% pay rise, a possible harbinger of additional benefit erosion.
The German handlers sacrificed their teams this week, which is not easy: a 12. 5% salary increase, at least 500 euros per month for 12 months, plus a one-time payment of 3,000 euros.
The Verdi union, which represents about 25,000 workers, said the company’s offer of more than 10% did not compensate for pandemic inflation.
Lufthansa says it is in a position to communicate but has not made any new offers.
Last week’s announcement that much-loved Chief Financial Officer Remco Steenbergen will leave in March further shook investor confidence, analysts said.
Shares fell 3. 6% on Friday’s news.
“This increases the risk that the target of a pullback of at least 8% that he has set for himself will be reduced or postponed to the future,” says Stefan Maichl, an analyst at LBBW.
REALISTIC RESULTS
Capacity issues in Asia, a slow business recovery and ongoing engine woes also weighed on the outlook for expansion, casting doubt on earnings targets.
“Lufthansa is facing a new world with less business: peak successful passengers and 40% of passenger revenue before the pandemic,” said Alex Irving, an analyst at Bernstein.
Lufthansa aims to mitigate the emerging costs of hard work with new airlines, adding Discover Airlines for recreational consumers and City Airlines for flights within Germany. Both will have particularly lower prices than the main airline, Lufthansa.
The carrier is also their premium product to attract the highest-paid business consumers they lost post-pandemic.
“When it comes to the costs of hard work, Lufthansa, as a premium airline, will have to make do with particularly high salaries for skilled professionals to ensure the highest quality of service,” said Patrick Schuchter, fund manager at Union Investment and one of Lufthansa’s twelve. largest shareholders.
($1 = 0. 9247 euros)
(Reporting by Joanna Plucinska and Ilona Wissenbach; editing by Josephine Mason and Bernadette Baum)