European price war squeezes Lufthansa hard

FRENCH PRESS AGENCY - AFP
Hessen-Frankfurt
Published 31.07.2019 00:15

European airline giant Lufthansa yesterday reported tumbling net profits in the second quarter, saying higher operating costs and a European short-haul price war ate into the bottom line.

Net profit at Lufthansa fell 70% year-on-year in April-June, to 226 million euros ($252 million).

"Persistent over capacities, aggressive competition and increasingly price-sensitive demand" were clipping the group's wings, it said in a statement. Operating, or underlying profit adjusted for special items was down less sharply, falling 25% to 754 million euros, on revenues up 4% at 9.6 billion euros. Lufthansa highlighted a 7% increase in costs, including a fuel bill that had risen by 255 million euros compared with 2018's second quarter. Those squeezed the group's adjusted operating profit margin by three percentage points, to 7.8%. The group, which includes the flagship blue-crane airline alongside no-frills Eurowings and smaller carriers like Austrian and Swiss airways, is "responding to this by further reducing our costs and increasing our flexibility," said Chief Financial Officer Ulrik Svensson.

Notably, "we intend to make Eurowings a sustainably profitable airline" after bosses for years forced breakneck growth through takeovers of competitors' aircraft and other assets.

The no-frills branch booked an adjusted operating loss of 273 million euros in the second quarter, worse than the 220 million euros loss in April-June of last year. Senior management hope to return it to profitability in 2021, and aim to cut costs 15% by the following year while avoiding layoffs. While price wars were weighing on short-haul flights, long-haul "is expected to continue its currently above-average development in the second half," Lufthansa said, although "risks... have increased".

Shares in Lufthansa were the second-worst performers on Germany's blue-chip DAX index at around 11:15 am (09.15 GMT), shedding 5.5% to trade at 14.30 euros. Finance chief Svensson also said that the group has "no plans" to reshape itself into a holding company along the lines of other German giants like Siemens or Daimler – dashing the hopes of some investors.

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