European price war squeezes Lufthansa hard in Q2

Planes of German air carrier Lufthansa AG on the tarmac at Fraport airport in Frankfurt, Germany November 2, 2016. — Reuters pic
Planes of German air carrier Lufthansa AG on the tarmac at Fraport airport in Frankfurt, Germany November 2, 2016. — Reuters pic

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FRANKFURT, July 30 — European airline giant Lufthansa today reported tumbling net profits in the first quarter, saying higher operating costs and a European short-haul price war ate into the bottom line.

Net profit at Lufthansa fell 70 per cent year-on-year in April-June, to €226 million (RM1.035 billion).

“Persistent overcapacities, 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 per cent to €754 million, on revenues up four per cent at €9.6 billion.

Lufthansa highlighted costs up seven per cent, including a fuel bill that had risen by €255 million compared with 2018's second quarter.

Those squeezed the group's adjusted operating profit margin by three percentage points, to 7.8 per cent.

The group, which includes the flagship blue-crane airline alongside no-frills Eurowings and smaller carriers like Austrian and Swiss, 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.

But the group also pointed to "overall economic prospects growing gloomier in... home markets" like Germany, where trade wars, Brexit and weakness in key emerging markets are weighing on growth prospects.

Looking ahead to the full year, Lufthansa stuck to its forecast of “a low single-digit percentage increase” in revenue and an adjusted operating profit margin of between 5.5 and 6.5 per cent.

“The Lufthansa group expects the European market to remain challenging until at least the end of this year,” it added. — AFP

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