Higher air fares forecast as ‘times of overcapacity over’

 Monday, August 8, 2022 


Lufthansa Airlines

Rising air fares this summer are a foretaste of the future with the era of airline overcapacity in Europe “over”.

That is according to Lufthansa Chief Executive Carsten Spohr, who hailed the current strength of demand allied to constraints on capacity as the industry seeks to curb disruption, as driving up yields on fares.

Reporting a Lufthansa Group profit of €259 million for the three months to June, Spohr said that the business model works so well right now.

The group reported the yield on its flights – the difference between fare revenue and operating costs –as 10% higher than in 2019, despite Lufthansa being compelled to cancel a significant number of flights, chiefly at its Frankfurt hub.

Spohr acknowledged that they removed a large number of flights from the schedule to stabilise the system.

But he argued that the times of overcapacity are over. Global aviation faces a global bottleneck that will stabilise prices for the whole industry.

He added that they expect yields to remain strong as corporate demand comes back and leisure demand remains strong.

Chief financial officer Remco Steenbergen described the group’s yield performance as “outstanding”, saying that they increased yields in the passenger business [in a way] that seemed impossible a few months ago.

The strength of short-term bookings exceeded our expectations and they saw yield increases across all regions.

Steenbergen reported the yield on long-haul traffic was 15% up on 2019, with short-haul yield almost level with 2019.

He blamed the slower return of corporate traffic for the shortfall in short-haul yield, revealing corporate demand was about 40% of the 2019 level in the second quarter of the year.

Steenbergen said that the corporate travel impact on short haul is significant. In that context, a 0% increase is a good performance.

He added that inflation should also feed through in yields, saying that cost inflation is largely being passed on to customers. They would expect general inflation to come through in higher yields.

Spohr reported the group’s carriers – Lufthansa, Swiss, Austrian Airlines, Brussels Airlines and Eurowings – would operate 75% of their 2019 capacity this year and said that they will operate something like 85% in 2023, which is still conservative.

He added that they believe there will be only moderate capacity growth due to ongoing capacity limitations.

Spohr forecast premium leisure demand would remain strong regardless of the deteriorating economic outlook.

He insisted that there is a clear trend of more and more guests travelling in premium and this supports our yield performance.

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