Lufthansa Jumps as Eurowings Profit Boost Erases Strike Concerns
Lufthansa Earnings Fall as Strike Highlights Costs Challenge
(Bloomberg) --
Deutsche Lufthansa AG said an improved performance at its no-frills Eurowings arm helped stem profit declines as a two-day strike underscores the challenge facing the airline in cutting costs.
Shares of Europe’s biggest airline rose the most in three years as Eurowings staged a comeback amid fierce price competition with rival discount carriers. While a drop in fares forced Lufthansa’s third-quarter earnings down 8% to 1.3 billion euros ($1.44 billion), the result was ahead of analyst estimates.
Lufthansa said it expects capacity to shrink 1% on short-haul routes in its home markets this winter, comments that Sanford C. Bernstein analyst Daniel Roeska said may point to a better operating environment over the next six months. A glut of seats in the past few years has pushed down fares and undermined margins at European carriers despite efforts to boost efficiency.
The cabin-crew strike highlights the challenge still facing Lufthansa as it seeks to secure deeper cost costs. The walkout, which began at midnight, has led to the cancellation of 1,300 flights and could push earnings toward the lower end of a targeted range, Chief Financial Officer Ulrik Svensson said on a call, adding that such action can cost up to 20 million euros per day.
A spokesman for the UFO union said later Thursday the group would meet with Lufthansa for talks on Saturday before reviewing whether to expand the strikes.
Alitalia
Chief Executive Officer Carsten Spohr said Lufthansa would be interested in bankrupt Italian carrier Alitalia SpA only once it has been restructured. He declined to comment on whether his company would be willing to invest cash to oust Delta Air Lines Inc. from a rescue package.
Lufthansa shares gained 9.7%, the biggest advance since October 2016, before trading 6.7% higher at 17.24 euros as of 2:54 p.m. in Frankfurt.
Spohr said the performance of Eurowings, which turned profitable after posting losses in the previous three quarters, indicates “turnaround measures are showing first results.” The unit has reduced winter capacity this winter, helping to buoy yields despite the fare war.
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To contact the reporter on this story: William Wilkes in Frankfurt at wwilkes1@bloomberg.net
To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, ;Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel
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