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Travel industry news

30 Jul 2019

BY James Chapple


Lufthansa’s quarterly earnings dented by European price war

Lufthansa Group has cited a fierce price war in Europe and soaring fuel costs for a 25% dent in its second-quarter (Q2) earnings.

Lufthansa tailfin

Lufthansa’s quarterly earnings dented by European price war

The group on Tuesday (30 July) posted adjusted pre-tax profits of €754 million, down a quarter from €1 billion this time last year.

Chief financial officer Ulrik Svensson said the group’s earnings were feeling the effects of “tough competition in Europe” and “sizeable overcapacities” in the European short-haul market.

“The price war in Germany and Austria, in particular, [have] had a negative impact on earnings,” he said.

During an earnings call, Svensson added he expected further fierce competition on price with the likes of Ryanair and easyJet for the rest of the year, and potentially into 2020.

“We are responding to this by further reducing our costs and increasing our flexibility,” said Svensson. “And with the turnaround plan which we recently presented, we also intend to make Eurowings a sustainably profitable airline.”

The group last month issued a profit warning, adjusting down its full-year profit guidance due to price pressures, market-wide overcapacities and the “aggressive” growth of its low-cost rivals.

Lufthansa’s own low-cost subsidiary Eurowings saw its pre-tax loss grow a further €57 million during Q2 to €273 million with load factor, up 0.9%, failing to keep pace with a 3.8% increase in capacity.

The group said while Eurowings short-haul business would likely face “further challenges” in the second half of the year, its long-haul business would offset some of the pain, with the carrier now expected to post full-year adjusted earnings before tax and interest (Ebit) down between 4% and 6%.

Lufthansa’s plans to turn Eurowings’ fortunes around include pursuing a clearer focus on European point-to-point routes and phasing out older, less efficient aircraft.

Its Network Airlines division – Lufthansa, SWISS and Austrian Airlines – is also expected to be hit by “gloomier” economic prospects in its home markets, increasing the risk of second-half business trends “falling short” of first-half levels.

Group fuel costs, meanwhile, came in €255 million higher than during Q2 2018.

Full-year revenue is forecast to increase by a “low, single-digit percentage” while adjusted Ebit is projected to come in up 5.5% to 6.5%.

Lufthansa Group’s share price fell 5% from €15 to €14.27 during early trading on Tuesday following its admissions.

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