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Lufthansa Stands by Profit Target as Demand for Travel Wanes

Published on Jul 4 2016 2:56 PM in General Industry tagged: Ryanair / Deutsche Lufthansa

Lufthansa Stands by Profit Target as Demand for Travel Wanes

Deutsche Lufthansa stuck to its forecast for higher earnings this year as a strong start to 2016 will help the German carrier offset a series of headwinds to travel demand.

“The guidance remains what it is,” Chief Executive Officer Carsten Spohr said Monday at a briefing in Frankfurt. “We have a little bit of a buffer from the first months of the year, when performance was better than planned.”

Lufthansa forecast that adjusted earnings before interest and taxes this year will be “slightly higher” than 2015’s €1.82. Analysts have lowered their expectations for the company in recent weeks and are now predicting adjusted Ebit to fall to €1.77 billion, according to estimates compiled by Bloomberg. In addition to tourists wary after recent terror attacks, the UK’s vote to leave the European Union has raised concerns about recession hitting travel demand.

Airlines have been hard hit by the uncertainty surrounding Brexit because of the volatility of demand. Ryanair Holdings CEO Michael O’Leary last week said the discount carrier would “keep lowering fares to keep people flying” following the pound’s drop. Immediately after the vote, British Airways owner IAG cut its 2016 earnings outlook because of the likely impact of exchange-rate changes.

After Lufthansa flew 3.3 per cent fewer passengers in May, “June was in line with expectations, not super,” said Spohr, who cut financial forecasts twice in 2014, his first year as CEO.

Lufthansa shares rose as much as 4.3 per cent and were up 2.9 per cent at €11.22 as of 3:22 pm in Frankfurt. The stock has tumbled 23 per cent this year, valuing the company at €5.23 billion.

Eurowings Plans

Lufthansa is in the midst of restructuring the airline to face increasing competition and overcapacity. The efforts center around expanding the Eurowings low-cost arm, which has progressed more slowly than planned. Spohr said that Eurowings’s capacity will rise 19 per cent this year, compared with its latest forecast for growth between 25 per cent and 30 per cent. In January, Lufthansa targeted expanding the discount unit by 43 percent.

To bolster Eurowings, Spohr expanded his range of options at the briefing on Monday, saying the unit could be merged with a partner with Lufthansa giving up full ownership. Other options the executive has previously discussed include cooperating with other airlines in a franchise model and buying an ownership stake in the partner.

Lufthansa is currently discussing a deeper collaboration between Eurowings and Brussels Airlines, which is 45 per cent owned by the German airline. Spohr also raised the possibility of a broad partnership with tour operator Thomas Cook Group, saying any potential talks about cooperation need not be limited to the British company’s Condor charter airline unit, which Lufthansa used to own.

News by Bloomberg, edited by Hospitality Ireland

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