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Lufthansa Earnings Deepen Aviation Gloom as Fare War Bites

Lufthansa Has Profit Drop on Fare War, Says Outlook Could Worsen

(Bloomberg) -- Deutsche Lufthansa AG said threats to its financial outlook are mounting after a fare war and stuttering global economy dented second quarter-earnings, adding to the gloom surrounding Europe’s airline industry.

Lufthansa warned Tuesday that the fight for market share means business trends could deteriorate further in the second half, sending the stock down 7.4% even as the group stood by reduced full-year profit guidance issued last month.

Europe’s biggest airline joins discount rival Ryanair Holdings Plc in clinging to its earnings goals in the face of falling fares, slowing GDP growth, rising fuel costs and disruption from congested airspace and extreme weather. Lufthansa’s home German market has become a key battleground, with the collapse of smaller carriers unleashing a bruising fight for market share.

“Europe is the problem,” Bernstein analyst Daniel Roeska said, adding that quarterly figures in line with expectations don’t allay more deep-seated concerns. “As we move into peak summer, messages of a tough environment continuing should leave investors cautious on demand for the rest of 2019.”

Shares of Lufthansa traded 5.2% lower at 14.34 euros as of 10:13 a.m. in Frankfurt, taking the decline this year to 27% and reducing the company’s market value to 6.83 billion euros ($7.6 billion). The stock fell 12% after the June 17 profit warning.

Adjusted earnings before interest and tax dropped by one-quarter to 754 million euros in the three months through June, Lufthansa reported, in line with an average analyst estimate of 757 million euros.

Short-haul routes are most under pressure, with yields, a measure of fares, tumbling at the Eurowings discount arm that the group had expanded to combat Ryanair, but which it now plans to rein in after mounting losses.

Lufthansa said it doesn’t see things improving this year, with discounts continuing to weigh on ticket prices. Budget carriers operating in Germany cut fares as much as 10% in recent months, according to a government report, indicating that the market still has excess seats despite the demise of Air Berlin, Britain’s Monarch, Iceland-based Wow and a host of smaller operators.

Headwinds from a German economic slowdown are also building amid simmering trade tensions, with business confidence at its lowest in a decade.

As well as hitting corporate demand for flights, the conflict is crimping earnings at Lufthansa’s cargo arm, which were 88% lower than a year ago. Routes between Asia and Europe are particularly weak, and the airline said margin targets at the unit are at risk.

Lufthansa Earnings Deepen Aviation Gloom as Fare War Bites

Chief Financial Officer Ulrik Svensson blamed oversupply and “tough competition” for the pressure on earnings and said Lufthansa will respond “by further reducing our costs and increasing our flexibility.” Ryanair said Monday that it’s not about to ease up on capacity despite a 21% drop in quarterly profit, arguing that its cost base gives it an edge over European rivals.

Lufthansa’s full-service rivals Air France-KLM and IAG SA, which owns British Airways and Spain’s Iberia, are due to report earnings on Wednesday and Friday respectively.

More on Lufthansa’s Peak-Season Pressures

  • Lufthansa’s Forecast Looks Cloudy With Little Chance of Profit
  • Air Cargo Slowdown Heralds Global Pain From Trump Trade War
  • Lufthansa Plunges Most in Three Years as Low Cost Fare War Bites
  • Lufthansa’s Summer Blues Deepen as Cabin Crew Vote on Strikes

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, Christopher Jasper, Tara Patel

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