Valuation of Deutsche Lufthansa AG in the Face of the COVID-19 Crisis

Patrycja Brogowska

Student thesis: Master thesis


The purpose of this thesis it to determine the fair value of Deutsche Lufthansa AG as of August 6, 2020, five months after the COVID-19 pandemic outbreak. To address the problem statement, the strategic and financial analysis of Lufthansa and its environment were carried out and were further used as an input for forecasting and eventually for the DCFF and EVA valuation.
Since present value approaches rely on various assumptions, the result obtained was examined against an alternative method, namely relative valuation. Supported by the academic frameworks, the strategic analysis of the airline industry helped to reach the conclusion, that the environment of Deutsche Lufthansa AG is characterised by a fierce competition. In face of the COVID-19 crisis, the passenger air transportation is affected like no other industry by the government responses to fight the pandemic. Additionally, weaker financial position of individuals and businesses resulting from the economic downturn and decrease in customers’ confidence negatively affect the demand levels and are expected to slow down the overall market recovery. Furthermore, extraordinary circumstances are causing a rapid social change, and videoconferencing is exacted to become a serious threat of substitute to the business travel. Benchmarking of the company’s financial performance against its peer group resulted in a conclusion, that Lufthansa is characterised by lower than average profitability. It’s high fleet ownership ratio and low financial leverage, however, place the company in a favourable position in the face of the COVID-19 crisis.
Although the forecasts are characterised by a high degree of uncertainty, I believe that the market demand, and consequently Lufthansa’s passenger traffic volumes, are expected to recover by the end of the year 2024. However, substitution of the business travel with videoconferencing and continuous fierce competition characterising the industry are expected to negatively influence Lufthansa’s passenger yields.
Eventually, based on valuation using DCFF and EVA, the Lufthansa’s share price as of August 6, 2020 was set at 23.59 EUR suggesting undervaluation. Although the forecasts applied in the two models rely on strong assumptions and are to a high degree uncertain, undervaluation was further confirmed by the multiples.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2021
Number of pages150