GEOFF PERCIVAL: Lufthansa not afraid of Ryanair growth plans as tough year looms

Lufthansa has said it is not overly concerned with Ryanair’s aggressive growth plans for the German market and that it has the quality and competitive offering via its Eurowings subsidiary to compete with the Irish carrier.

Earlier this year, Ryanair targeted Germany as one of its key European expansion areas and said it hoped to grow its share of the market from 5% to around 20% within five years. It has since said it is expanding there, mainly through Cologne and Berlin, at a faster-than-anticipated rate.

However, speaking in Dublin yesterday at the formal announcement of Lufthansa’s expanded services to and from Ireland, the German carrier’s European spokesman, Boris Orgursky, said competition was part of the business and Lufthansa was seeing it [in Germany] from a number of carriers, adding “we’re used to it and we will deal with it”.

Andreas Koster, senior director for Ireland, Britain, and Iceland, said that despite sterling’s weakness, the airline has seen no real negative effect from June’s Brexit vote.

Lufthansa is about to enter its 45th year of flying to and from Ireland. Yesterday, it formally unveiled plans to double frequency on its Dublin-Munich service and introduce a once-weekly Cork-Zurich route (via its Swiss International Airlines subsidiary) and a Shannon-Frankfurt service.

Mr Koster said Lufthansa will be operating 56 flights to and from Ireland by next summer. It is already the biggest foreign airline operating in Ireland.

“Business here is good and it is growing. We are investing in our product and technology and continue to be innovative and we feel that Irish customers appreciate our product and service,” he said.

Lufthansa increased passenger numbers by 12% on its Irish routes this year, with 80% of customers being inbound tourists using Ireland as an end-destination rather than an international stop-over.

Airlines will see profits fall for the first time in six years in 2017, after peaking this year, as rising oil and labour costs bite and demand slows, the International Air Transport Association said yesterday.

The association represents 265 airlines accounting for 83% of global air traffic, said it expects the industry’s net profits to fall 16% to $29.8bn next year, mainly due to rising oil prices, and with north American carriers accounting for $18.1bn of the total.

It also cut its 2016 forecast for net profits to $35.6bn (€33.5bn), still a record high but down from a previous prediction of $39.4bn.

Despite falling to 7.9% next year from 9.4%, the industry’s return on capital is expected to exceed the cost of capital in 2017 for the third year in a row. Collectively, the first time the industry managed to generate an above cost- of-capital return was in 2015.

Association chief economist Brian Pearce said airlines recognised the need to provide returns for investors.

“It’s no longer about market share, but how do we use our assets, deliver a good return on capital. It’s something that will stick with the industry and should underpin the industry’s financials,” he said.


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