Shares in Europe's leading airline groups - including Ryanair and Aer Lingus-owner IAG - plummeted on the back of a profit warning from German carrier Lufthansa.
Late on Sunday, Lufthansa forecast annual earnings, before interest and tax, of between €2bn and €2.4bn. That was down on the previously targeted range of between €2.4bn and €3bn. Lower fare prices and higher fuel costs have compounded the effect of losses at its budget subsidiary Eurowings, the German airline group said.
“Yields in the European short-haul market, in particular in the group’s home markets, Germany and Austria, are affected by sustained overcapacities caused by carriers willing to accept significant losses to expand their market share,” Lufthansa said.
European airlines are locked in a battle for supremacy, with a surfeit of seats holding down revenues and higher fuel costs adding to the pressure. A number of smaller airlines have collapsed over the past two years.
Lufthansa cited falling revenue from its Eurowings budget business as a key reason for the profit warning.
“The group expects the European market to remain challenging at least for the remainder of 2019,” it said.
It also pointed to high jet fuel costs, which it said could exceed last year’s figure by 550 million euros, despite a recent fall in crude oil prices.
Lufthansa shares tumbled by close to 12% on the back of its announcement and European rivals also felt the heat. Ryanair shares fell by 4.4%, with Aer Lingus and British Airways-owner IAG down 2.2%. Air France-KLM fell 4.5% and EasyJet was also down by over 4%.
"Despite a strong performance in long haul, the price deterioration in Europe, caused by market-wide overcapacities and aggressively growing low-cost competitors, has led to Lufthansa lowering guidance," said Davy analyst Stephen Furlong.
Ryanair boss Michael O’Leary last month warned of the impact of what he called “attritional fare wars” and said four or five European airlines were likely to emerge as the winners in the sector.
Earlier this month global airlines slashed a widely watched industry profit forecast by 21%.