Lufthansa profits up on lower costs but tougher times ahead

German airline Lufthansa repeated a warning that terrorism fears would weigh on bookings and profits in the second half of the year as it reported a solid increase in underlying profits in the first half thanks to cost controls and lower fuel prices.
Once stripping out one-off factors that distort annual comparisons, Lufthansa said yesterday that adjusted earnings before interest and taxes — the company’s usual profit gauge — rose 61 million euros to 529 million euros (USD585 million) in the same period last year. If those one-off factors are included, net profit more than halved to 429 million euros from 954 million euros, when profits were boosted by 503 million euros through the early conversion of a convertible bond.
The airline credited strict management of seat capacity for an increase of 3.8 percentage points to 5.2 percent in the profit margin at its passenger airline business. However, Lufthansa’s cargo business saw a fall of 95 million euros in first-half earnings due to “massive market overcapacities” while yields from air freight had fallen to levels last seen during the financial crisis in 2009.
Lufthansa shares fell 3.9 percent to 10.31 euros in midday trading in Europe.
CEO Carsten Spohr said in a statement that the company achieved “a solid result” in the first half, but warned that “our industry has to prepare for a difficult” second half. The company has already had to abandon its earnings forecast for the full year, saying it expects profits to be below last year’s, instead of slightly above.
“The terrorist attacks in Europe and also the increasing political and economic uncertainties are having a tangible impact on passenger volumes,” said Spohr, who noted a particular impact on forward bookings for long-distance flights to Europe.
Europe has witnessed a series of attacks over the past year, including last November’s in Paris which killed 130 people and the bombings at the Brussels airport and subway in March that killed 32. On July 14, an attacker drover a truck through a crowd in Nice, France, killing 84.
Recently, Germany itself has witnessed an ax-and-knife attack by a 17-year-old Afghan refugee who injured 5 people in Wuerzburg on July 18 and a suicide bombing that injured several people outside a wine-bar in Anspach, Germany on July 24.
Britain’s vote to leave the European Union and a failed military coup in Turkey have added to political and economic uncertainty in Europe as well.
The turbulence is affecting other airlines; Air France has warned that the global context “is highly uncertain” and noted “a special concern about France as a destination.” EasyJet has warned that the events in Turkey and the Nice attack “continue to impact consumer confidence.” David McHugh, Frankfurt, AP