Lufthansa confidence eroded by terror attacks

Lufthansa has given a gloomy outlook for the key summer season and said it would focus on reducing costs after attacks in Europe deterred passengers from booking trips, creating price pressure for the German airline and its European rivals.

Lufthansa confidence eroded by terror attacks

The carrier two weeks ago lowered its profit target for the year and trimmed growth plans after bookings on long-haul routes to Europe fell following a series of attacks in Europe and political troubles stemming from Britain’s vote to leave the EU and the failed coup in Turkey.

“We don’t have any visibility on how people are booking, and we’re losing group bookings from Asia and the US due to travel warnings,” chief financial officer Simone Menne said, although she noted business travel was holding up.

The uncertainty comes during the important third quarter for European airlines, traditionally when they make most of their money due to the summer holidays.

Other major carriers have cut back on planned growth due to the resulting pressure on prices.

Last week Air France-KLM said it was concerned about France’s attractiveness as a destination, while Aer Lingus and British Airways owner IAG gave a cautious outlook for the year.

Ms Menne said Lufthansa had sold 67% of seats for the third quarter, 3% less than at this time last year.

Unit revenues are set to fall 8% to 9% in the second half and yields — a measure of pricing — are at levels last seen during the 2009 financial crisis, chief executive Carsten Spohr said.

Lufthansa, which has been trying to reduce costs in the light of competition from low-cost carriers and fast-growing carriers such as Emirates and Turkish Airlines, said it aimed to reduce unit costs, excluding fuel and currency, by 2% to 3% in the second half of the year.

“With the recent market developments, the importance of efficiency gains is prioritised. In 2017, the focus will be on cost efficiency and not growth,” Mr Spohr said.

In the first half of the year, the airline’s unit costs fell 1.3%. Lufthansa has agreed a new pay and pensions deal with cabin crew but is still in talks with its pilots.

Lufthansa expects 2016 adjusted earnings before interest and tax to be below that of last year, when it made just over €1.8bn.

However, it said it still expected to be able to pay a dividend for this year, as earnings before interest and tax should be above last year, partly thanks to the cabin crew deal that will help reduce its pension costs.

Its shares, down almost 30% this year, fell 3.8% yesterday, the biggest faller among European travel stocks.

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