Lufthansa fare slide to slow as CEO seeks further cuts

Lufthansa said a slide in fares triggered by excess capacity is beginning to slow, easing the burden on earnings as fuel costs rise.

Adjusted operating profit will decline “slightly” in 2017 after the figure dropped 3.6% to €1.75 billion last year, Lufthansa said yesterday. 

The guidance for this year compares with analyst predictions for a slump of about 20% to €1.42bn.

Fares across Europe have been under pressure after weakening oil prices prompted airlines to add seats just as stuttering economies and a spate of terrorist attacks hurt demand. 

While Lufthansa’s unit revenue — a measure of prices — fell 5.8% in 2016, the decline should be less severe this year, the German carrier said.

Chief executive Carsten Spohr said the company still needs to slash costs even after he sealed a pilot deal that may end years of labour strife on the eve of the earnings release.

The accord covering pay and pensions will cut flight-crew expenses by 15%, advancing his push to combat the challenge of Mideast airlines on long-haul routes and low-cost rivals in Europe. 

Lufthansa shares rose as much as 5.8% at one stage yesterday in Frankfurt trade. The shares are up 23% this year.

“It remains necessary to further reduce our costs,” Mr Spohr said. 

“This is the only way to meet and master the decline in unit revenues and the higher fuel expenses, and at the same time maintain and strengthen our financial stability.”

Pressure to deliver savings will increase as Lufthansa’s fuel bill jumps by €350m this year. With crude prices rising, the International Air Transport Association predicts European airlines as a whole are set for a 25% profit slump in 2017.

Bloomberg

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