Following the economic losses fueled by the COVID-19 pandemic, the aviation industry has not been spared either. Lufthansa, the largest German airline confirmed that in the first quarter, it made a loss of $1.3 billion and expects more planes to be parked over the next twelve months (Dunn, 2020). As such, Lufthansa Group has come up with strategies for restructuring as well as cost-cutting programs to help stay afloat and fulfill other financial responsibilities.
It is worth noting that Lufthansa has cut its fixed costs by a third. Currently, a total of 800 Euros is spent on liquidity reserves. As such, the expenditure is still high even after cutting, considering the cancellation of international flights. According to the group, there are cancelled tickets that are yet to be reimbursed and financial liabilities to be paid. Foreseeably, they will have negative liquidity on the company’s liquidity development (Bhuiyan, 2020).
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Needless to say, the financial impacts on Lufthansa group are as a result of the global air traffic that came to a standstill in the recent few months. Currently there is very low demand of airplane services which has reflected on the number of passengers the group has carried. As of April 2020, Lufthansa carried only 241,000 passengers which was a 98% downward spiral (Dunn, 2020). In addition, the company has parked 700 out of its 763 aircrafts amid the crisis. Through the restructuring efforts, Lufthansa group is resuming some of its services this month and hopes to be 40% operational by September. This could improve the situation as compared to the previous months. To support the restructuring efforts and program, Lufthansa’s supervisory board approved a 9 billion Euro fund to support the local and other group companies of Lufthansa airlines (Saslavsky &Rastogi, 2020). Restructuring is critical due to uncertainty surrounding the COVID-19 pandemic.
References
Bhuiyan, H. A. (2020). Airline Group Reservation: predicting and minimizing cancellations.
Retrieved from https://scholar.google.com/scholar?hl=en&as_sdt=0%2C5&q=Bhuiyan%2C+H.+A.+%282020%29.+Airline+Group+Reservation%3A+predicting+and+minimizing+cancellations.&btnG=
Dunn, G. (2020). Lufthansa steps up restructuring as it confirms big jump in Q1 losses.
Retrieved from https://www.flightglobal.com/strategy/lufthansa-steps-up-restructuring-as-it-confirms-big-jump-in-q1-losses/138662.article
Saslavsky, D., & Rastogi, C. (2020). Facilitating Air Freight–Policies and Actions. Retrieved from
https://elibrary.worldbank.org/doi/abs/10.1596/33717
