Lufthansa (LHA) has announced that it is preparing a new offer for pilots who have announced a two-day strike. This is another not the best news for the airline giant, which, after dealing with most of the problems caused by the pandemic, is having increasing trouble assembling crews and retaining staff.
The company is a large German airline that operates especially on routes in Europe and the Middle East. It has other brands under it such as Eurowings, Swiss, Austrian Airlines and Brussels Airlines. In addition to passenger services, the airline derives 20% of its revenue from the transport of goods. It generated €16.8 billion in revenue at the end of last year.
The LHA pilots have announced that they will begin a strike at midnight today, which is expected to last 2 days. This could result in the cancellation of more flights, which have totalled more than 8,000 this season. To avoid this, the company is expected to make a better offer to the unions, after the last one was rejected by them.
The airline has already managed to avoid similar strikes this year, after raising pilot pay. Michael Niggemann, Lufthansa’s board member in charge of labour affairs, commented on the current situation, saying "we will do everything in our power to get a better offer accepted." The union announced that it needed a "serious offer" to stop the strikes.
As demand for business travel and vacations returned after pandemic-related restrictions were lifted, demand for transportation services rebounded significantly. It was not without losses, however, which took LHA to the brink of bankruptcy in 2020 and left it with billions of euros in debt. At the end of the six-month period, total debt stood at 15.8 billion euros and net debt at 6.4 billion.
To reduce debt, Lufthansa CEO Carsten Spohr pledged to increase the airline's profit margin to a minimum of 8% by 2024. Looking at the dynamics of the aforementioned metrics, it's fair to say that the group is doing relatively well so far in paying off its debts, liquidating more than €2.8 billion in net debt over the course of the year.
In recent months, the European airline industry has been continually plagued by shortages of ground staff, leading to problems with flight operations and growing demands from workers who must cope with rising living costs and overtime. The current threats of strikes are further evidence of the airline's bad situation. Earlier this year, SAS (Scandinavian Airlines), for example, faced similar issues.
According to Bernstein analysts, the lowest risk of bankruptcy is presented by Ryanair, EasyJet and Whizz Air, which have very low costs. In addition, according to the firm, the risk is low for Air France, IAG, and Lufthansa, which could still rely on at least partial government assistance, especially given their importance in the labour market.
While the pandemic has only bankrupted a handful of airlines, thanks to substantial help from local governments, carriers may again face financial problems due to higher fuel and labor costs combined with a seasonal decline in travel, said Bernstein (an asset management and brokerage firm). Now governments are struggling primarily with the energy crisis and inflation, so they may be less willing to help airlines.
Through the deteriorating macroeconomic environment, Bernstein reissued a sell rating on Lufthansa, with a target price of €4.75. This is an exception to the rest of the companies, which points to the possibility of price increases.
According to MarketScreener data, the company has a total of 17 recommendations, of which: 4 "strong buy" and 6 "hold." 6 recommendations indicate a decline in the share price. The average target price is €7.23, which is above Bernstein's pessimistic recommendation. At the last closing price of 5.87 euros, it could mean a potential increase of 23.3%. Meanwhile, the realization of the Bernstein scenario could mean a decrease of about 19%.
On the Conotoxia MT5 platform, LHA shares gained 1.6 % as of today at 14:00 GMT+3.
Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service)
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