Lufthansa fares to fall further as airline flies into the red

The German airline Deutsche Lufthansa said passenger fares are set to slide further this year as it revamps European operations in a bid to stem the flow of customers to discount rivals.

Lufthansa said one-off effects and price pressures pushed it into a loss in the first three months of the year, but it was nevertheless sticking to its full-year targets.

The carrier booked a net loss of €8 million (Dh34m) in the period from January to March, compared with a profit of €425m a year earlier.

But the airline pointed out that the year-earlier figure had been boosted by one-off financial gains.

At an underlying level, earnings before interest and tax (ebit) showed a loss of €49m, compared with a much deeper loss of 1€44m a year earlier.

First-quarter revenues slipped by 0.8 per cent to €6.91 billion.

“We have seen a solid start into the new business year,” said the chief financial officer, Simone Menne.

The airline was also benefiting from further fuel cost reductions, she said.

“We are seeing significant pricing pressure at our passenger airlines, and even more at Lufthansa Cargo. But the substantial unit cost reduction at our passenger airlines has more than made up for the pricing declines,” Ms Menne said.

Lufthansa said it did not expect to see any easing of the pricing pressures in the passenger and cargo transport sectors.

“The trends we have seen in the last few months are likely to continue throughout the present quarter,” said Ms Menne.

“The intensity of the competition and the resulting pricing pressures will not ease. This is why it is important that we continue to work consistently on our cost positions,” she said.

Looking ahead to the full year, Lufthansa said its forecasts remained unchanged.

“We expect to achieve an adjusted ebit slightly above the previous year result of 1.8 billion euros,” the company said.

“This forecast does not, however, include the negative result impacts of possible strike actions.”

Lufthansa’s yield, a measure that reflects average ticket prices, fell the most in at least four years during the first quarter, while airline revenue declined almost 4 per cent, the carrier said.

Lufthansa has split its airline operations in two, separating hub-based network brands from low-cost services provided by the Eurowings discount division. A push to expand Eurowings into a competitor for low-cost leaders Ryanair and easyJet has met with resistance from unions, and walkouts have held back profit the past two years.

The Eurowings result was €33m euros below its prior-year level, reflecting start-up costs for long-haul flights, according to the company.

A seat-occupancy rate of 94.2 per cent nevertheless shows that the expanded discount arm is “off to a successful start,” with customer feedback “very positive”, Ms Menne said.

Yields declined by 6.3 per cent in the quarter, the most since the company began breaking out the figure on quarterly basis in 2012. Capacity growth in 2016 will be limited to 6 per cent, down from the 6.6 per cent forecast earlier and Lufthansa could trim growth further, Ms Menne said.

Lufthansa reiterated that fuel expenses should decline by €1bn this year, and continues to target a reduction in unit costs. The company’s cargo operations, among the industry’s largest, will not now improve profit this year, it said.

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