Lufthansa blames short-haul price war and fuel prices for 70% drop in quarter’s net profit

©Lufthansa

Announcing a 25% drop in adjusted EBIT earnings to €754 million for the second quarter and net profit plummeting 70% to €226 million, Lufthansa’s share price fell 5.5% by 0850 GMT, July 30, having already fallen by almost a third over the last year. Aside from a €200 million tax provision hitting profits hard, the company blamed a combination of price competition on short-haul routes, plus rising fuel and maintenance costs.

Commenting on the situation, Lufthansa Chief Financial Officer Ulrik Svensson said: “Our earnings are feeling the effects of tough competition in Europe and sizeable overcapacities, especially on our short-haul routes out of Germany and Austria,” adding that: “We are expecting that we will indeed have a very tough price competitive situation with these carriers for the rest of the year and maybe also into 2020.”

Lufthansa had hoped June’s turnaround plans for its low-cost carrier Eurowings would have had positive results but is now looking to a pick-up in long haul business to offset an adjusted EBIT margin of -4% to -6% for Eurowings projected for the year as a whole. In June Lufthansa said that Eurowings would look to cut costs by 15% over the next three years, focusing on short-haul flights as part of a plan to once again become profitable by 2021.

Lufthansa has maintained its guidance for 2019, having cut its full-year profit forecast due to lower prices and higher fuel costs compounding the effect of losses at its budget subsidiary Eurowings. Since June it has been forecasting an adjusted EBIT margin of between 5.5% and 6.5% for 2019 – which would correspond with adjusted earnings of between €2.0 billion and 2.4 billion – a decline of 14% to 28.5% compared with last year. Fuel costs were reported as €255 million higher in the second quarter than in the previous year. While the newspaper Handelsblatt reported on Monday that Lufthansa was considering adopting a corporate holding structure to simplify its operations, improve profitability and regain the support of investors, Ulrik Svensson has said the company had no plans to change its corporate structure.

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