Frankfurt - Deutsche Lufthansa said passenger fares are set to slide further this year as it revamps European operations in a bid to stem the flow of customers to discount rivals. The stock fell as much as 6 percent.
Lufthansa’s yield, a measure that reflects average ticket prices, fell the most in at least four years during the first quarter, while airline revenue declined almost 4 percent, the German carrier said in a statement on Tuesday.
Read: Lufthansa profit soars
A 237-million-euro fuel saving linked to the lower oil price helped the company to reduce its adjusted loss before interest and tax to 53 million euros ($61 million) in the three months, from 167 million euros a year earlier.
Lufthansa said the intensity of competition and the resulting pressure on prices will not ease, reiterating that it expects earnings to rise only “slightly” this year versus 2015 as weaker fares erode fuel benefits.
Stock slides
Shares of Europe’s third-largest airline fell as much 83 cents to 12.90 euros and were trading down 5.7 percent at 9.29am in Frankfurt.
Lufthansa has split its airline operations in two, separating hub-based network brands from low-cost services provided by the Eurowings discount division. A push to expand Eurowings into a competitor for low-cost leaders Ryanair Holdings and EasyJet has met with resistance from unions, and walkouts have held back profit the past two years.
The Eurowings result was 33 million euros below its prior-year level, reflecting start-up costs for long-haul flights, according to the company, while the main Lufthansa brand lifted earnings by 244 million euros.
A seat-occupancy rate of 94.2 per cent nevertheless shows that the expanded discount arm is “off to a successful start”, with customer feedback “very positive”, Chief Financial Officer Simone Menne said on a conference call.
Yields declined by 6.3 percent in the quarter, the most since the company began breaking out the figure on quarterly basis in 2012, while group revenue 0.8 percent. Capacity growth in 2016 will be limited to 6 percent, down from the 6.6 percent forecast earlier, as pricing pressures remain “significant”, and Lufthansa could trim growth further, Menne said.
Cost improvement
Group-wide unit costs declined 4 percent in the quarter, with about half that gain coming from sustainable measures, Menne said, adding that the company has “turned the trend”. Lufthansa also benefited from the absence of a year ago expense of 100 million euros attributable to strike costs and write-downs on the Venezuelan bolivar.
Analysts had forecast an adjusted Ebit of 71 million euros for the first quarter, according to figures provided by the company.
While terror attacks across Europe have prompted some customers to delay bookings, that trend caused “no relevant declines” at Lufthansa, the CFO said. That’s after British Airways owner IAG SA, which said last week that bookings are being hurt by the Brussels bombings, as well as weaker demand from oil-based economies and the possibility of the UK exiting the European Union.
Lufthansa reiterated that fuel expenses should decline by 1 billion euros this year, and continues to target a reduction in unit costs. The company’s cargo operations, among the industry’s largest, have been hit by overcapacity and won’t now improve profit this year, it said.
European airlines frequently post losses in the first quarter, which falls between the Christmas and New Year period and the summer high season, though IAG, which is more advanced in its short-haul restructuring, said last week that operating profit increased more than six-fold to 155 million euros.
BLOOMBERG