Eurowings expansion weighs down Lufthansa profit

German group cuts forecast for 2018 capacity growth

Costs to expand its Eurowings budget carrier held back profit growth at German airline Lufthansa in the first three months of the year and the group cut its forecast for 2018 capacity growth.

Lufthansa has been at the forefront of wave of consolidation among Europe's airlines, taking over Brussels Airlines and parts of insolvent Air Berlin last year. It has also submitted a bid for ailing Italian carrier Alitalia.

While the collapse of Air Berlin has driven more passengers to its brands, Lufthansa said on Thursday one-off costs from integrating its former competitor had pushed Eurowings to an adjusted loss of €203 million.

One-off expenses at Eurowings will continue to weigh in coming months, it added.

The Eurowings costs acted as a drag on Lufthansa’s adjusted earnings before interest and tax (Ebit) which rose only slightly to €26 million, far short of the €81.3 million forecast by analysts in a Reuters poll.

The Lufthansa brand meanwhile reported its best operating margin in 10 years in the quarter, while freight arm Lufthansa Cargo almost doubled its profit, thanks to robust world trade.

Shares in Lufthansa, which have shed around 16 per cent of their value since the start of the year, fell 4.5 per cent to €24.44 in early trade compared to a flat European airlines index.

Lower capacity

Lufthansa lowered its guidance for total group capacity growth to 8.5 per cent from its previous forecast of 9.5 per cent due to strikes at Austrian, bad weather and a decision to restrict growth at Eurowings to keep operations stable.

The airline has already seen its growth plans curbed this year by delays to some short-haul A320neo planes from Airbus.

The capacity reduction and a weaker US dollar mean Lufthansa now expects a slightly lower fuel bill of €5.8 billion this year, instead of €5.9 billion.

Unit revenues are expected to rise slightly in the second quarter, Lufthansa said. For 2018 as a whole, it still sees them remaining stable from last year.

– Reuters