To make matters worse, they must also contend with exogenous shocks over which they have no control - recessions, pandemics, skyrocketing fuel prices and more.
In response to current events in the Middle East, which have seen traffic to Emirati airport hubs collapse and kerosene prices literally double, Lufthansa is taking proactive measures. The carrier is canceling 20,000 short-haul flights over the coming months as a cost-saving measure, while simultaneously raising its fares.
Q1 results - traditionally the weakest of the year for Lufthansa - published yesterday did not yet fully reflect this tricky situation. Furthermore, the company had fortunately hedged against rising crude prices for 80% of its purchased fuel volumes.
Cash generation remains positive - albeit narrowly - and at this stage, it is premature to suggest that the German carrier's consolidation ambitions will be derailed in Europe. As we can see, investors are reacting to the events in the Middle East with a surprising "wait-and-see" attitude.
It is true that all stockmarket sectors - with the possible exception of energy - currently appear to be valued as if the crisis in the Strait of Hormuz will not last, though it remains unclear whether this represents sound composure or just recklessness.
Lufthansa, which had to carry out a highly dilutive capital increase during the pandemic, has generated €2.4bn in free cash flow over the last 3 years. A good third of this was returned to shareholders as dividends in 2024 and 2025, while the balance was used to reduce debt.
Barring any major unforeseen events, 2026 should, according to management forecasts, follow the same trend as in the past three fiscal years. It is to be hoped that this will indeed be the case, as Lufthansa's financial leverage still represents over quadruple last year's operating profit, and more than 8x the annual free cash flow in the overall very favorable period of 2023-2025.
See also on this subject Lufthansa: Art of the deal, which we published last September.
