Ryanair and EasyJet have both used the demise of Air Berlin to boost their operations in Germany. You get the feeling that we'll be hearing a lot more from Lufthansa's low-cost unit Eurowings in the coming years.
Operating profit that jumped 70 percent in 2017 is set to slide, snapping a three-year run of record annual earnings, Lufthansa said in a statement Thursday. The company will also trim its capacity plans as a splurge on seating among European carriers risks flooding the market.
Lufthansa is adopting a more cautious approach after EasyJet Plc and Ryanair Holdings Plc used the failure of Air Berlin to jump-start their operations in Germany, where low-cost specialists have lacked penetration. Air Berlin’s collapse was largely responsible for Lufthansa’s fastest revenue growth in seven years in 2017 as a lack of flights bolstered fares and it secured grounded jets to add flights. It also bought the whole of Brussels Airlines.
“Competition is becoming more intense,” Lufthansa said in its annual report. Though a number of carriers have folded, there has been “an even greater number of entries,” and the company’s business will therefore experience “significant fluctuations” in the year ahead.
Shares of Lufthansa fell as much as 2.4 percent and were trading little changed at 26.28 euros as of 9:25 a.m. in Frankfurt. The stock has declined 15 percent so far this year.
Lufthansa plans to increase capacity 9.5 percent in 2017, less than the 12 percent previously planned, with much of the gain stemming for a full year of operations with ex-Air Berlin planes and ownership of Brussels Air. Air France-KLM Group, Europe’s biggest airline, plans to boost seating 4 percent and British Airways owner IAG SA is planning a 6.7 percent jump.
Unit revenues, a measure of fares, will rise slightly in the first six months, but visibility beyond that point is low, and there may be little change for the full year, Chief Financial officer Ulrik Svensson said in the release. Lufthansa shares last week suffered their biggest drop in seven months after the airline said a trend toward higher ticket prices came to a halt in February.
Lufthansa posted an operating profit of 2.97 billion euros ($3.7 billion) in 2017. That was double Air France-KLM’s 1.49 billion euros but slightly below the 3.05 billion euros reported by IAG. This year’s earnings will also be hit by a fuel bill set to be about 700 million euros higher, the carrier said.
©2018 Bloomberg L.P.
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Photo Credit: Lufthansa's new brand image. The airline group expects a tougher 2018. Bloomberg