By Geoffrey Smith
Investing.com – Germany's largest airline gave food for thought to those who played the reopening trade on Thursday, revised their own outlook, and stressed that the sector's fate this year rests in the hands of European politicians who have been so far. Don't get vaccines into people's arms.
Deutsche Lufthansa (DE 🙂 expects a second operating loss in a row for 2021, albeit a much smaller one than in the previous year (5.5 billion euros). For the first quarter, CEO Carsten Spohr expects an outflow of 300 million euros.
As has so often happened in the past, the airline will have more aircraft than it needs this year: it will only fly 40% to 50% of its prepandemic capacity this year, compared to an earlier estimate of up to 60%. Lufthansa assumes that more than 50% of the capacity must be available in order to achieve a positive operating cash flow.
"Our business has recovered more slowly than originally hoped," said Spohr.
The airline was also optimistic about the longer-term outlook, which it doesn't expect traffic to return to pre-Covid levels by at least the middle of the decade. Previously, the company had expected business to return to 2019 levels by 2024. As a result, attempts are being made to withdraw more older aircraft from service.
All of this was released along with a record $ 6.7 billion ($ 8.0 billion) net loss that the market had already priced in. The Lufthansa share fell by 1.4%, making it the worst performance of the major European airlines on that day.
Remarkably, at the top of Lufthansa's press release was a call to the European Union to set up “internationally recognized digital vaccination and testing certificates” so that people can travel with confidence again without fear of catching Covid-19 in a closed one Aircraft cabin.
Such systems "must replace travel bans and quarantines," said Spohr. The interesting thing is that Lufthansa's largest shareholder, the German government, is arguably the biggest obstacle to such a system, which was launched at last week's EU summit against appeals from countries like Greece and Spain, whose economies are more dependent on tourism , was pushed back heavily.
The European Commission announced on Monday that it would soon begin drafting a law to introduce an EU-wide “Digital Green Pass”. However, it is unlikely that Madrid or Athens will be satisfied unless the system is extended to the UK.
Euronews reported Tuesday that the plan is expected to require at least three months of technical work and must address concerns ranging from privacy and discrimination to counterfeiting. This schedule leaves very little time for slip-ups if the program is to be of use to vacationers and those seeking seasonal work abroad.
So – does this mean the craze for European airline stocks is out of place? The Stoxx Total Market Airlines index is up over 60% since the Pfizer BioNTech vaccine breakthrough, and companies like International Airlines Group (LON 🙂 and Wizz Air (LON 🙂 rose again on Thursday's broader sector. More importantly, data compiled by Investing.com suggests stocks are still protected by low absolute and relative valuations: European airlines trade an average of 0.22 times in revenue. The comparable ratio for US airlines is 1.
Even so, Lufthansa's warning was intended to be a reminder that the travel sector cannot recover until the virus is defeated, and that fighting the virus depends on the EU dramatically improving its vaccination record. The three most vaccinated countries on the continent – Great Britain, Norway and Serbia – have very different profiles and have little in common other than their non-EU membership.
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