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Lufthansa signals turbulence for European aviation

A revised outlook of significantly lower profits from Lufthansa Group due partly to its subsidiary Eurowings sent the airline’s stock price tumbling.

The Executive Board of Lufthansa Group, the top European carrier by passenger numbers, has revised its financial outlook for 2019, conceding that “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 group has now downgraded its expected margins for the year to between 5.5% and 6.5% instead of 6.5% to 8%. After the news, the company’s share price dropped more than 12% in Frankfurt to €15.47, their lowest level in over two years.

It does note that the revised outlook factors in a fuel cost increase of €550 million despite the recent decline in the price of oil.

Selling short
Lufthansa places the blame for the lowered profit on short-haul flights in Europe undergoing “overcapacities caused by carriers willing to accept significant losses to expand their market share.”

Consequently, at Lufthansa’s low-cost subsidiary Eurowings, revenues are expected to decline significantly in the second quarter of 2019. Over the course of the whole year, they are predicted to decrease at a mid-single-digit rate.

And the company claims that because progress in cost-cutting at Eurowings is slower than expected, the subsidiary’s management has “resolved upon further turnaround measures which it will present shortly”.

The negative outlook from Lufthansa also affected other European airlines. Low-cost carriers Ryanair and EasyJet experienced share drops of roughly 4.5%, while Air France KLM shares fell by 3%.

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