Bright outlook at Lufthansa after high demand in summer
Lufthansa gave an upbeat assessment on trading for the rest of the year on Wednesday, after it benefited from strong northern summer demand and the demise of rivals.
While the summer has seen Air Berlin and British carrier Monarch collapse due to tough competition, Europe’s major carriers have had fuller aircraft and improving price trends.
Lufthansa said it was having to use bigger, long-haul aircraft on some short-haul routes as a result of the additional demand caused by the collapse of Air Berlin, which will carry out its final flight on Friday.
“Altogether, we are expecting a very strong year. Our view on the development in the fourth quarter has improved,” chief financial officer Ulrik Svensson said after the group reported a 32% rise in underlying thirdquarter earnings before interest and tax.
The group expects unit revenue, the all-important measure of how much income is generated per unit of capacity, to rise slightly in the fourth quarter after a 4.5% increase in the third quarter. It previously predicted a drop in unit revenue for the second half.
Lufthansa’s share price has soared in 2017, more than doubling to highs last posted in 2001, and was up 2.9% on Wednesday at €26.95, the top gainer in the DAX index. The carrier also stuck to its profit target for the year, aiming to earn more than the 2016 total of €1.75bn.
Analysts on average expect Lufthansa to report 2017 adjusted earnings before interest and tax of €2.6bn, though several said that figure could rise following Wednesday’s results. Morgan Stanley predicted 10% upside to the consensus.
Along with the collapse of Air Berlin, Lufthansa is benefiting from US and Asian tourists returning to Europe in 2017, a long-term deal with its pilots on pay that removes the threat of strikes and a weakening in competition from Gulf carriers.
Its network airlines Lufthansa, Swiss and Austrian saw their combined adjusted earnings before interest and tax margin rise 4.6 percentage points to 18% in the quarter.
Finnair reported better-thanexpected profit on Wednesday, also helped by good demand on its Asian routes.
British Airways parent IAG, due to give third-quarter results on Friday, also expects a rise in unit revenue in the second half of 2017. CEO Willie Walsh said earlier in October he saw no reason to change that view.
Despite the positive outlook, Lufthansa CE Carsten Spohr said Lufthansa would not rest on its laurels.
“We know there is more work needed to bring down complexity and costs further,” he said, adding that the proposed deal to take over large parts of Air Berlin would bring its own challenges over the next year as it takes on 81 aircraft from the former rival. However, Svensson said Lufthansa was targeting a slight decline in unit costs in the fourth quarter and was aiming to reduce them by at least 1% a year in the future.
The Air Berlin deal, which Lufthansa expects will close in January if approved by the competition regulators, will add about €1.5bn in revenue in 2018 but entails project costs of about €50m for items such as repainting aircraft and training staff.
EUROPE’S MAJOR CARRIERS HAVE SEEN FULLER AIRCRAFT AND IMPROVING PRICE TRENDS