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Lufthansa Fares Under Pressure as It Grapples With Restructuring

Published on May 3 2016 9:49 AM in General Industry tagged: Aer Lingus / Deutsche Lufthansa

Lufthansa Fares Under Pressure as It Grapples With Restructuring

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 per cent.

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 Tuesday.

A €237 million fuel saving linked to the lower oil price helped the company to reduce its adjusted loss before interest and tax to €53 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

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 Plc and EasyJet Plc 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.

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 per cent 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 per cent, down from the 6.6 per cent forecast earlier, as pricing pressures remain “significant,” and Lufthansa could trim growth further, Menne said.

News by Bloomberg, edited by Hospitality Ireland

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