Lufthansa shares sank nearly 7% — and the most in four and a half months — after the German airline cut its growth plans after a slide in fares and higher fuel costs weighed on 2018 earnings.
The carrier said it will slow capacity increases to 1.9% this summer from the 3.8 previously planned in an effort to bolster prices and cope with limited room for extra flights at airports.
Lufthansa is slowing expansion as it focuses on profitability after a year in which an industry-wide glut in seats combined with severe weather and air traffic control strikes to erode margins. European rivals have warned that a fare war will make for a tough summer, with Ryanair cautioning, last month, that conditions could get tougher.
Lufthansa chief executive Carsten Spohr said earnings had been held back despite the best revenue performance in Lufthansa’s history. Capacity growth across the sector should slow to 3% in Europe this summer, providing some relief for yields, a measure of fares. Scope for German expansion is limited as air traffic controllers are recruited too slowly to cope with demand, he said.
Lufthansa dropped as much as 6.7%. That pares gains this year to 10% after the shares fell 36% in 2018.
The carrier’s adjusted earnings before interest and tax fell 7% to €2.8bn last year, versus an average analyst estimate of €2.75bn. The figure was boosted by a €122m accounting gain from capitalising engine overhauls.
Lufthansa’s profitability may erode further this year. Discount arm Eurowings is targeting break even after booking €170m in costs from integrating jets from failed rival Air Berlin.
Source: Business News