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Travel industry news

17 Jun 2019

BY James Chapple

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Lufthansa issues profit warning citing European ‘price pressures’

Lufthansa Group has cut its full-year profit guidance citing “price pressures” on its European operations brought on by “market-wide overcapacities” and the “aggressive” growth of low-cost rivals.

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Lufthansa issues profit warning citing European ‘price pressures’

The airline said on Monday morning (17 June) it was revising the group’s financial outlook for the full year. Adjusted margin for earnings before tax and interest (ebit) was previously forecast between 6.5% to 8%; this has been reduced to 5.5% to 6.5%.


Projected pre-tax ebit now stands at €2 billion to €2.4 billion, as opposed to €2.4 billion to €3 billion. This also factors in a €550 million increase in fuel costs, despite declining oil prices.


“Yields in the European short-haul market, in particular in the group’s home markets [of] Germany and Austria, are affected by sustained overcapacities caused by carriers willing to accept significant losses to expand their market share,” said Lufthansa.


“This is putting pressure on yields at the Network Airlines and Eurowings. Both will continue to vigorously defend their market positions while focusing on securing profitability at the same time.”


The group now expects Network Airlines to achieve an adjusted ebit margin of 7% to 9%, down from 7.5% to 9.5%. It expects Eurowings’ current flat adjusted ebit margin, meanwhile, to fall away to -4% to -6%. “The group expects the European market to remain challenging at least for the remainder of 2019,” the airline added.


Such are the troubles facing Eurowings, the group is proposing further yet undisclosed “turnaround measures”, further details of which it says will be forthcoming.


“At Eurowings, unit revenues are expected to decline significantly in the second quarter of 2019,” said the group. “In the full year, they are forecasted to decrease at a mid-single-digit rate. As the progress in streamlining the Eurowings cost base is also slower than expected, the Eurowings management has resolved upon further turnaround measures which it will present shortly.”


Additionally, Lufthansa said its strong long-haul performance was being offset by European price pressures where demand “has become increasingly price sensitive. It has reduced plans to expand capacity across Network Airlines, particularly for winter 2019/20.


In April, the group posted a €336 million first-quarter loss citing soaring fuel costs and lower fares brought on by “market-wide overcapacity” in Europe.


The group is understood to be interested in acquiring Condor, Thomas Cook’s German carrier, after Cook placed its group airline business up for sale in full or in part.


Chief executive Carsten Spohr confirmed the approach in May, while a spokesperson confirmed to TTG the deal could extended to Thomas Cook Airlines’ other operations, including its UK division.

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