(Bloomberg) -- Deutsche Lufthansa AG Chief Executive Officer Carsten Spohr said the company’s flagship airline has continued to weigh on earnings as Europe’s largest carrier grapples with high personnel costs, aircraft delays, and growing competition from the Middle East and Asia.
“We’ll likely report strong traffic figures, but unfortunately the gap between the positive developments of the whole group and those of Lufthansa Airlines and City Airlines has widened,” Spohr said at a press briefing in Frankfurt on Monday, referring to third-quarter figures.
Lufthansa is set to report the numbers on Oct. 29. The airline already revised its full-year outlook in July, saying at the time that breaking even at its namesake German unit will be “increasingly challenging” this year.
In the first half, the Lufthansa Airlines subsidiary had an adjusted operating loss of €427 million ($475 million), compared with an profit of €149 million a year earlier. The unit generates over 40% of the group’s annual revenues.
“We need to get Lufthansa Airlines back on track,” Spohr said, adding that the target for the 100th anniversary in 2026 is for Lufthansa Airlines to be “a sign of strength, not our problem child.”
In response to the slower business, Lufthansa has initiated a savings plan as stiff competition drives down fares and corporate travel hasn’t rebounded fully from the pandemic. Lufthansa is also eliminating its direct daily flight from Frankfurt to Beijing because the airline is deploying fuel-guzzling, older aircraft on that service that are making that route unprofitable.
The moves are part of a broader strategy to stem losses at underperforming units and improve the company’s offerings to passengers willing to pay a premium. Lufthansa has invested in new airport lounges and a cabin-interior upgrade known as Allegris that includes double beds in first class suits.
Spohr said the airline will also put more focus on routes to Latin America that are more promising than some Asian routes, where competition has intensified with Chinese carriers.
Still, the rollout of the new cabin interiors has faced snags. On Monday, Spohr said the airline has been unable to add more capacity and upgrade to newer jets and cabin configurations due to production delays at Airbus SE and Boeing Co. Both manufacturers have struggled to lift output as they contend with strained supply chains and — in Boeing’s case — shortfalls in manufacturing quality.
“We’re missing more aircraft that we’ve ordered from Boeing than we actually have in the airline,” Spohr said.
Delivery of the 787 Dreamliners has been held up by unresolved paperwork connected with new cabin interiors, while the new 777 model is still undergoing certification, with an entry into commercial service not expected until late 2025 or even sometime in 2026.
That’s forced Lufthansa to hold onto older planes for longer, including out-of-production four-engine models such as the Airbus A340 and the Boeing 747-400. The company has also brought back its Airbus A380 double-deckers from temporary storage.
The muted outlook for the mainline airline contrasts with more upbeat operations at Lufthansa’s other divisions. Spohr said the group saw “enormously strong demand” during the summer season, noting an 88% load factor across its businesses in August.
Lufthansa shares have lost about 17% this year, the second-worst performer on the 12-member Stoxx 600 Travel & Leisure Index. The stock rose as much as 3.5% on Tuesday in Frankfurt trading.
(Updates with expansion plans, stock price)
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