Lufthansa sees plenty of turbulence ahead – share price collapses

Lufthansa sees plenty of turbulence ahead - share price collapses

A sharp drop in profits and gloomy forecasts for the coming months have sent deutsche lufthansa AG shares into a tailspin.

According to its own statements, the dax group is suffering from the rise in kerosene prices and the continuing strong competitive pressure in europe. Competition among airlines for passengers remains aggressive, particularly in germany and austria, the DAX-listed group announced in frankfurt on tuesday. This will hardly change until at least the end of 2019.

The company reported a 70 percent year-on-year drop in profits for the second quarter: despite a four percent increase in revenue to 9.6 billion euros, only 226 million euros in profits remained in the end, partly due to an unexpected tax provision.

All divisions recorded declines. The low-cost subsidiary eurowings, which is undergoing complex restructuring, and the cargo company lufthansa cargo were even in the red in the day-to-day business. Together with the negative first quarter, lufthansa incurred a loss of 116 million euros in the first six months of this year. A year ago, the company posted a profit of 713 million euros.

On the stock exchange, figures and forecasts were very negatively received. Lufthansa shares fell by more than six percent at times this morning, making them the biggest loser on the dax index. Since the turn of the year, it has already lost a good quarter of its value. Compared to the record high of early 2018, its share price has more than halved.

For the current year, the lufthansa management around CEO carsten spohr has already cut its expectations in mid-june. It now expects an operating profit of between 2.0 and 2.4 billion euros. The original target was 2.4 to 3.0 billion euros.

In the previous year, lufthansa had achieved 2.8 billion euros in this key figure (adjusted ebit). Despite the expected decline, the company will strive to pay a stable dividend of 80 cents per share for 2019.

The long-haul flights of the lufthansa, swiss and austrian airlines brands have so far proved to be the mainstays of the business. Demand and ticket prices developed very positively, especially on routes to north america and asia, it said. However, management warned of a generally weaker economic trend, which could affect short-term bookings in business and first class in particular by the end of the year.

The european business, on the other hand, remains embattled. The day before, competitor ryanair had already explained its sharp drop in profits as a result of the price war. The companies accuse each other of fuelling demand with prices that do not cover costs. Laudamotion, the ryanair subsidiary, is operating with advertising prices of less than 5 euros per seat in some cases.

Lufthansa’s chief financial officer ulrik svensson on tuesday reaffirmed his company’s determination to defend its market share and flight rights in the highly attractive domestic markets of germany, switzerland and austria. "It therefore makes sense to accept some slumps in our profit and loss statement."

There was no sign of any reluctance on the part of particularly environmentally conscious customers to travel due to so-called flight shame, said swede svensson. It said ticket prices were under pressure not because of demand but because of oversupply of flights. Eurowings has already halted the expansion of its services this year. Ryanair cannot grow as planned because the planned boeing 737 max aircraft have not yet received a new flight permit after two crashes.

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