Lufthansa has downgraded its annual profit forecast in the face of aggressive low-cost competition and overcapacity in Europe.
The German flag carrier issued the profit warning despite a strong performance in long-haul.
The airline said: “Yields in the European short-haul market, in particular in the group’s home markets Germany and Austria, are affected by sustained overcapacities caused by carriers willing to accept significant losses to expand their market share.
“Ongoing strong performance in long haul only partly offsets the price deterioration in Europe caused by market-wide overcapacities and aggressively growing low cost competitors.”
The alert sent other airline shares tumbling, including easyJet and British Airways owner International Airlines Group.
Lufthansa said it expected its profit margin to drop to between 5.5% and 6.5% from 6.5% to 8%, resulting in full year adjusted earnings of between €2 billion and €2.4 billion. The revised outlook factors in a fuel cost increase of €550 million despite a recent decline of the oil price.
“The group expects the European market to remain challenging at least for the remainder of 2019,” Lufthansa added.
However, the group pledged to continue to “vigorously defend” its leading market positions while focusing on securing profitability at the same time.
Lufthansa and low-cost offshoot Eurowings are both facing pressure on yields following expansion by easyJet into Germany with takeover of Air Berlin operations at Berlin Tegal airport and Ryanair’s acquisition of Laudamotion in Austria.
“The transatlantic route is generating particularly positive performance and demand on the Asian routes remains high,” Lufthansa said.
“Strength in long haul, however, is being offset by price pressures in Europe where demand has become increasingly price sensitive, resulting in lower yields.”
Only marginal expansion is planned by Lufthansa for winter 2019-20 while the process of streamlining Eurowings’ cost base has been slower than expected, with further turnaround measures to be unveiled shortly.
This is a community-moderated forum.
All post are the individual views of the respective commenter and are not the expressed views of Travel Weekly.
By posting your comments you agree to accept our Terms & Conditions.