Over-Ambitious Lufthansa Curbs Growth as Profit Miss Hits Stock
(Bloomberg) -- Deutsche Lufthansa AG is paying the price of chasing market share in its own backyard as the cost of integrating jets from collapsed rival Air Berlin Plc weighs on earnings.
Lufthansa shares fell as much as 9.5 percent Tuesday, the biggest intraday drop in more than 2 years, after the German carrier’s latest results missed analyst estimates, forcing it to trim expansion plans to help bolster margins.
Lufthansa previously called the chance to snap up planes from Air Berlin the opportunity of a lifetime. While the move added passengers, the company has struggled to efficiently utilize the jets, racking up a bill from compensation for delays. Rival carriers are also targeting Germany, hurting fares, and the higher oil price has made the group’s thirsty four-engine jets more expensive to run.
“Clearly we’re unhappy, but we’re accepting the short-term costs that will translate into long-term benefits,” Chief Financial Officer Ulrik Svensson said on a call. The executive said he’s confident that unit costs, a key measure that showed an unwelcome jump in the third quarter, will still fall this year.
Lufthansa’s capacity growth this winter will now be limited to 8 percent, below the German average, and will drop to 3.8 percent next summer from a previous target closer to 6 percent.
The airline will also invest about 250 million euros ($284 million) in having more reserve aircraft and staff available next summer. Expenses from compensation payments and work on the acquired Air Berlin jets amounted to 520 million euros in the first nine months of 2018 as an overly ambitious flying program coincided with labor shortages and air traffic control strikes.
Lufthansa also said:
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