Globalization And Digitalization Will Expand International Air Travel

Key Takeaways

• Sustained improvements in operational efficiency, digitalization, and premium offerings are driving stronger-than-expected margins and revenue growth, outpacing market forecasts.
  
• Strategic expansion into emerging markets, high-growth aviation services, and ESG leadership positions Lufthansa to capture outsized long-term earnings and premium market share.
  
• Rising costs, competitive pressures, subdued business travel, fleet renewal delays, and European market overexposure threaten revenue growth, profitability, and operational efficiency.

Catalysts

Operates as an aviation company in Germany and internationally.

• While analyst consensus highlights improved operational excellence and reduced irregularity costs, recent results show that Lufthansa is consistently exceeding its targets, with irregularity costs now down by up to 35% year-on-year; when combined with productivity gains from automation and digitalization, this could push net margins far higher and faster than currently modeled by the market.
  
• Analysts broadly expect cabin upgrades and new aircraft to boost yields and revenue, but early feedback on the Allegris product and strong willingness to pay for differentiated seating already exceed management expectations, suggesting ancillary and premium revenue uplift could be materially higher than consensus forecasts, meaning stronger medium-term earnings growth.
  
• Long-term demographic trends and the rising middle class, particularly in Asia, are likely to accelerate international travel demand beyond current projections; Lufthansa's investments in capacity and expanded network in Asia and emerging markets position it to capture outsized revenue growth as these secular shifts take hold.
  
• Rapid scaling and digital integration of Lufthansa Technik and Cargo are delivering structural EBIT growth and record margins even amid global volatility; expanding their scope into high-growth sectors like defense and e-commerce logistics could transform these into disproportionately high-margin, counter-cyclical engines of profit, supporting both earnings resilience and upside.
  
• Lufthansa's aggressive fleet renewal and environmental leadership mean that, as global climate regulation tightens and corporate customers prioritize ESG-compliant suppliers, the group will win greater long-term premium share and pricing power, both protecting and enhancing top-line revenue and margin expansion well ahead of industry peers.

Deutsche Lufthansa Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Deutsche Lufthansa compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Deutsche Lufthansa's revenue will grow by 5.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.6% today to 4.7% in 3 years time.
• The bullish analysts expect earnings to reach €2.2 billion (and earnings per share of €1.76) by about August 2028, up from €1.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 7.6x on those 2028 earnings, up from 5.6x today. This future PE is greater than the current PE for the GB Airlines industry at 5.7x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.01%, as per the Simply Wall St company report.

Deutsche Lufthansa Future Earnings Per Share Growth

Risks

• Persistent cost inflation-especially in labor, location, airport charges, and air traffic control fees-as highlighted by both management and ongoing regulatory burdens in Germany and Europe, continues to weigh heavily on the cost base, potentially compressing net margins and eroding long-term earnings.
  
• Heightened competition from low-cost carriers and aggressive railway expansion on short-haul routes, as well as structural overcapacity in the European market, are already leading to yield pressure and revenue softness, particularly in the critical home market, creating long-term headwinds for topline growth.
  
• Demand for business travel remains structurally impaired, with the text referencing ongoing softness in bookings and a permanent shift towards virtual alternatives, which threatens Lufthansa's most profitable revenue streams and long-term profitability.
  
• Delays and uncertainty regarding aircraft deliveries, exacerbated by aviation supply chain bottlenecks, are impeding fleet renewal, which in turn could slow efficiency gains and magnify exposure to rising carbon costs and future environmental regulation, increasing both operating costs and required CapEx.
  
• The company faces continued regional concentration risk, with overexposure to slow-growing European economies that are further vulnerable to aging demographics and changes in travel patterns, thereby limiting long-term revenue growth potential.

Valuation

• The assumed bullish price target for Deutsche Lufthansa is €10.49, which represents two standard deviations above the consensus price target of €7.58. This valuation is based on what can be assumed as the expectations of Deutsche Lufthansa's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €12.0, and the most bearish reporting a price target of just €5.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €45.8 billion, earnings will come to €2.2 billion, and it would be trading on a PE ratio of 7.6x, assuming you use a discount rate of 9.0%.
• Given the current share price of €8.25, the bullish analyst price target of €10.49 is 21.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.