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Price wars burden business: Lufthansa steams profit target for 2019

The fierce price war in European air traffic thwarts Lufthansa's profit plans.

Due to an "aggressive" business expansion of low-cost airlines and the resulting ticket prices, the operating profit (adjusted EBIT) of the Group should reach only 2.0 to 2.4 billion euros this year, Europe's largest airline announced on Sunday evening in Frankfurt. So far, the management had assumed about 2.4 to 3.0 billion euros.

In its record year of 2017, Lufthansa had earned around EUR 3.0 billion in operations, and a year later it was still well over EUR 2.8 billion.

While the business continues to run well on the long haul, the cheap subsidiary Eurowings should now miss the breakeven and write operationally red due to the fierce competition, announced the Dax Group now with a view to 2019. Because competitors are willing to accept significant losses in order to expand their market share. This is also on Eurowings not without a trace. The Lufthansa management also believes that the European market will remain so challenging at least until the end of 2019.

After the management around Carsten Spohr had already stopped the expansion of the flight offer at Eurowings for 2019 a few weeks ago, now it also aims for the network airlines only a lower growth. As a result, sales in 2019 should only increase in the low single-digit percentage range. So far, the management had an increase of 4 to 6 percent in the eye.

The falling ticket prices are also responsible for the decline. In the current second quarter, average yields are expected to fall "significantly", especially at Eurowings, it said. For the full year, Group management expects a decline in the mid-single-digit percentage range, while the group's own network airlines Lufthansa, Swiss and Austrian forecast a slight decline in currency-adjusted terms.

Eurowings now wants to take further action to reverse the situation – not least because its operating costs are not going down as fast as planned. Details will be announced by the airline shortly. Actually, the cheap daughter, who has taken over large parts of Air Berlin, 2019 fly into profit.

The cargo business is also worse off than expected: The freight division Lufthansa Cargo has already taken three older cargo aircraft out of the flight schedule and expects only stagnating sales this year. Of the revenues only about 3 to 5 percent are likely to hang as operating profit in the Group, it said. That's about half as much as previously intended.

Apart from the current business, the Group also fears higher tax payments for earlier years due to a new case law of the Federal Finance Court. Therefore, the management intends to create a provision of 340 million euros in the interim report for the first half of the year.


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