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Image: Lufthansa Group

Lufthansa cuts down on growth

The group is entering a phase of tighter capacity discipline, particularly heading into next summer.

Lufthansa Group has announced the results of its third quarter showing revenue growth of 2% to €9.96 billion, while profit before interest and tax fell to €1.35 billion, 4% less than in the same period last year.

Year to date, the group has also performed weaker than last year, with revenue for the first nine months at €26.9 billion, up by just 1%, and EBIT was 3% lower to €2.36 billion.

There are several reasons why the group is faring worse in 2018. The integration of new activities at Eurowings has cost a lot of money, and rising fuel costs along with costs associated with the summer’s many delays and cancellations have also hit earnings.

“We expect to see our full-year costs increase by more than €1 billion in 2018 due to fuel costs and the extra expenses incurred from delays and cancellations alone,” admits Carsten Spohr, chairman of the executive board and CEO.

But the results are not catastrophic. The surplus in 2017 was the largest ever, and had it not been for Eurowings, the group could have set a new earnings record in 2018.

Eurowings issues
In isolation, Eurowings suffered a loss before interest and tax of €65 million in the third quarter, which is a negative deviation of no less than €210 million compared to the same period last year.

This includes €170 million from the integration of activities from the former Air Berlin, but the other costs are due to delayed flights and cancellations.

“In 2017, we seized a historic opportunity in the consolidation of Europe’s aviation sector,” comments Spohr. “And it was the right decision to do so in strategic terms, even if this has given Eurowings a very challenging 2018. We view the one-off costs of integrating these operations and of our rapid expansion as a long-term investment that will help sustainably strengthen our market position.”

The current challenges are causing Lufthansa Group to slow its growth. Even though competitors in the German market are raising capacity by more than 10% in the new winter schedules, Lufthansa has opted to increase by 8%.

In the summer 2019 programme, the capacity discipline becomes more pronounced as the group expects capacity to rise by only 3.8%.

Investment analysts at Bernstein said in a note to clients: “Beyond today’s results, this is likely to prove a positive for the stock, given that there were significant investor expectations of a profit warning or guidance downgrade heading into the results.”

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