Air­line takes a hit of higher fuel costs, cus­tomer com­pen­sa­tion

The Gulf Today - Business - - FRONT PAGE -

FRANK­FURT: Ger­many’s big­gest car­rier Lufthansa will in­crease flights at a more mod­est pace than its peers this sea­son, af­ter higher fuel costs and cus­tomer com­pen­sa­tion for a slew of can­celled flights caused it to miss third quar­ter profit es­ti­mates.

The com­pany on Tues­day re­ported ad­justed earn­ings be­fore in­ter­est and taxes (EBIT) of 1.35 bil­lion eu­ros ($1.54 bil­lion), against ex­pec­ta­tions of 1.41 bil­lion eu­ros in the July-septem­ber pe­riod.

Shares in the com­pany, which have fallen by roughly two fifths since the start of the year, were in­di­cated to open 0.7 per cent lower, while the Ger­man blue-chip DAX index was seen up 0.1 per cent.

The fuel costs and com­pen­sa­tion pay­ments are ex­pected to in­crease costs by more than 1 bil­lion eu­ros this year, Chief Ex­ec­u­tive Carsten Spohr said, while an ad­di­tional 170 mil­lion eu­ros has been paid for the now com­pleted re­struc­tur­ing of its bud­get car­rier Eurow­ings.

How­ever, it main­tained its guid­ance for the full year of a slight fall from 2017’s record level of 2.97 bil­lion eu­ros.

“Be­yond to­day’s re­sults, this is likely to prove a pos­i­tive for the stock, given that there were sig­nif­i­cant in­vestor ex­pec­ta­tions of a profit warn­ing or guid­ance down­grade head­ing into the re­sults,” an­a­lysts at Bern­stein said in a note to clients.

Over­ca­pac­ity in the mar­ket is ex­pected to in­crease price pressure again, af­ter the in­sol­vency of Ger­man car­rier Air Berlin last year light­ened the sit­u­a­tion tem­po­rar­ily.

Ear­lier this month, Ryanair Chief Ex­ec­u­tive Michael O’leary said that he would push fares down by 2 per cent in the six months to March 31 on Euro­pean short-haul routes, while cut­ting the air­line’s profit tar­gets.

In con­trast, Lufthansa said that on the back of higher fuel costs, ticket prices would rise next year, af­ter hav­ing al­ready said in the sum­mer that it would raise ticket prices for the rest of 2018.

Lufthansa said it ex­pects to ex­pand ca­pac­ity by 8 per cent this win­ter ver­sus an an­tic­i­pated 10 per cent at peers and to grow ca­pac­ity by 3.8 per cent for the 2019 sum­mer timetable.

Al­to­gether, Lufthansa ex­pects to hike 2019 ca­pac­ity by sig­nif­i­cantly less than the 8 per cent seen this year, when it ben­e­fited from the Air­ber­lin in­sol­vency.

“Fu­ture growth in the air trans­port sec­tor will need to pay far more re­gard to the ca­pac­i­ties of the in­fra­struc­ture in the air and on the ground,” Spohr said.

The Ger­man flag­ship car­rier ex­pects 900 mil­lion eu­ros in ex­tra ex­penses for fuel next year, af­ter an in­crease of 850 mil­lion eu­ros this year.

It has paid out 350 mil­lion eu­ros so far this year in com­pen­sa­tion for late or can­celled flights.

As­so­ci­ated Press

Carsten Spohr with cabin crew dur­ing a press con­fer­ence of Lufthansa in Frank­furt, Ger­many.

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