The Lufthansa Group has reported a 4 per cent rise in revenue to €9.6 billion for the second quarter, though a “price war” on short-haul routes has hit the group’s earnings.
Adjusted earnings for the quarter amounted to €754 million – down from €1 billion for the same period last year. Lufthansa Group says its figures were impacted by fuel costs that were €255 million higher than the previous year.
The effect of higher costs and lower fares caused by a price war on short-haul routes – particularly in Germany and Austria – is more apparent in the group’s first-half financials. While total revenue for the period grew 3 per cent to €17.5 billion, earnings declined to €418 million from more than €1 billion the previous year.
Owing to a number of factors, including a revaluation of tax risk in Germany, Lufthansa Group reported a net profit of €-116 million for the first half – a sizeable drop from €713 million last year.
Irish carrier Ryanair has also blamed increased competition as one of the reasons for its recently announced 21 per cent drop in profits.
Group CFO Ulrik Svensson commented: “Our earnings are feeling the effects of tough competition in Europe and sizeable overcapacities, especially on our short-haul routes out of Germany and Austria. We are responding to this by further reducing our costs and increasing our flexibility. And with the turnaround plan which we recently presented, we also intend to make Eurowings a sustainably profitable airline.”
Eurowings has been struggling financially of late and reported a 5 per cent drop in unit revenues. The group recently announced it would transfer the carrier’s long-haul operations to its network airlines and instead focus on short-haul routes in an effort to turn around its performance. A plan to integrate Brussels Airlines with Eurowings has also been scrapped.
Lufthansa Group is also modernising its airlines’ long-haul fleets and phasing in more efficient aircraft, both to reduce emissions and cut fuel costs.
The group recently increased its distribution cost charge for fares on its network airlines to £14 from £11.30, blaming the weakening pound for the move.
Looking ahead, the group expects to report an adjusted margin of 5.5 to 6.5 per cent for the full year 2019, predicting that the European market will “remain challenging until at least the end of this year”.
lufthansagroup.com