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Lufthansa losses soar on higher fuel costs and capacity glut

Apr 30

Lufthansa losses soar on higher fuel costs and capacity glut

Europe’s biggest airline is also abandoning plans to increase capacity at Eurowings discount arm by 2 per cent this year

Lufthansa said its net loss widened nine-fold to €342 million (Dh1.4 billion) in the first three months of the year, hurt by rising fuel costs and excess capacity in Europe.

'We are confident, though, we will see a recovery in our unit revenue as early as the second quarter. Our confidence is based above all on our favourable booking levels for the month ahead,' said chief financial officer Ulrik Svensson.

European airlines are battling overcapacity and uncertainty around Brexit has led some travellers to delay booking flights for their summer holidays, Reuters said.

Lufthansa expects the market to grow by 4 per cent in summer, compared with a rise of 9 per cent seen in winter, while it expects its home market - defined as Germany, Austria, Switzerland and Belgium - to grow by 3 per cent.

Europe’s biggest airline is abandoning plans to increase capacity at Eurowings by 2 per cent this year. 'Capacity growth is now expected at 0 per cent,' Lufthansa said on its website.

The decision to dial back growth at Eurowings comes after the German carrier in March said it would slow group capacity increases to 1.9 per cent this summer from the 3.8 per cent previously planned in an effort to bolster prices. Revenues for airlines across Europe have also been crimped by a fuel-price squeeze that’s forced airlines out of business since the summer, according to Bloomberg.

Failures include Iceland's WOW, Britain's Flybmi, German holiday airline Germania and Nordic budget airline Primera Air.

Lufthansa dropped as much as 3.1 per cent in Frankfurt trading. The shares were down 1.1 per cent at about €22 at 10:10 am. They’ve gained about 12 percent this year.

For 2019, the group still expects to make an adjusted operating profit margin of 6.5 to 8 per cent. Fuel costs are projected to be €700m above the previous year, and €50 m more than its previous guidance.

Adjusted earnings in its Other Businesses and Group Functions segment is expected to be €100m below the previous year, compared with a miss by €150m projected earlier.

Earlier this month, Lufthansa had said a €200m rise in fuel costs weighed on earnings, while ticket prices took a major dive.

Quarterly return on available seat kilometres was down 8.5 per cent at its low-cost carrier Eurowings and 5.2 per cent in its other airlines, while costs were reduced 7.2 per cent and 0.8 per cent, respectively.