German airline Lufthansa lowered its profit targets for the next two years today, citing competition from Middle East and low-cost carriers, sending its shares plunging.
The shares fell 16 per cent after the statement, wiping €1.5 billion off the company’s market value, heading for their biggest ever one-day drop.
The warning dragged down European rivals too, with Air France-KLM losing 6 per cent and British Airways owner IAG down 4.5 per cent.
Europe’s largest airline by revenue, Lufthansa had surprised with better-than-expected results in May. However, it said it now expects 2014 operating profit of €1 billion, down from a previous forecast of €1.3-€1.5 billion. It also reduced its 2015 earnings target to €2 billion from €2.65 billion.
Along with weakness in its cargo operations, Lufthansa is experiencing problems with pricing for its business and first class seats on European and US routes, where it and rivals have been increasing the number of seats available, its finance chief said.
"There is overcapacity in the north Atlantic," said Simone Menne.
The airline plans to increase capacity by 7.4 per cent on North American routes this summer, Ms Menne confirmed.
“We had hoped that the pricing weakness was temporary,” she said, referring to overall trends at the group. “But May showed negative pricing year on year, and for forward bookings in June and July, we see unit revenues are clearly behind last year’s figures.”
She said Lufthansa was feeling the competition especially from Gulf carriers such as Emirates, Qatar Airways and Etihad, and from low-cost airlines.
Its low-cost unit, Germanwings, was on track to break even in 2015, she said.
The weak revenues from the passenger and cargo side mean new chief executive Carsten Spohr, in the job for just over a month, will introduce new restructuring moves in July. – (Reuters)