Business Essentials for Professionals


Lufthansa Reports Q1 Loss Due To High Fuel Cost And Higher Capacity In Europe

Lufthansa Reports Q1 Loss Due To High Fuel Cost And Higher Capacity In Europe
Increase in jet fuel costs and the increasing capacity of seats in Europe were cited to be the reasons for an operating loss of 336 million euros or $380 million for the first quarter of the current year for Lufthansa. As a consequence, the shares of the company dropped on Tuesday.
The largest airline of Germany was severely hit by 202 million euro because increased costs of jet fuel which brought down its profits, said the company in an after-hours update on Monday. This was also accompanied by a drop in ticket prices in significant amounts at the other airlines of Lufthansa. The subsidiary airlines that are owned and operated by the company include SWISS and Austrian Airlines in addition to the budget carrier Eurowings.
The loss reported by Lufthansa was significantly more than what has been expected by the market.
The shares of the company dropped by 1 per cent in early trading on Tuesday, which was about 2 per cent below the broader bluechip index values in Germany. The performance of the airline at the stock exchange also negatively impacted the shares of rival airlines such as Ryanair, EasyJet and Air France KLM.
The loss reported by Lufthansa added on to the already existing concerns about the global aviation industry and it came after a poor performance reporting by easyJet which on April 1 said that it was expecting to incur a loss of 275 million pound or $360 million for the six months to the end of March.
The loss made by Lufthansa in the first three months of the year is being seen with greater scrutiny in comparison to the same period a year ago because last year, the company had gained due to the removal of a major competitor in its home market, Air Berlin, because of its insolvency, the company said.
In the same period a year ago, an operating profit of 52 million euros was reported by Lufthansa.
High fuel costs and overcapacity is troubling European airlines even as many travellers and tourists have deferred travelling and cancelled their summer holiday bookings because of the uncertainty around Brexit.
In March, the latest budget airline to fall prey to the tough business conditions in Europe was Iceland's WOW. The airline did not manage to raise sufficient funds and consequently had to halt operations and cancel all future flights. Britain's Flybmi, German holiday airline Germania, Nordic budget airline Primera Air and Cypriot carrier Cobalt are among the other airline failures in recent times.
Analysts at Independent Research said that for the airline industry, the first quarter of every year is typically the weakest. However they warned of increased risks of a profit warning.
The expectations by Lufthansa for the second quarter was good as it said that it expected an increase in revenues because of recovery of booking levels, and added that an adjusted operating profit margin of 6.5-8.0 percent would be made by it for the entire of 2019.

Lufthansa is due to publish detailed results for the first quarter on April 30.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc