Lufthansa forecasts earnings slump in third quarter as costs rise

By Rachel More and Joanna Plucinska

BERLIN/LONDON (Reuters) -German flagship carrier Lufthansa expects lower third-quarter earnings as yields slump and unit costs increase, the company said on Wednesday, adding to warning signs for European airlines amid flattening demand and aircraft delivery snags.

Airfares around Europe and Asia have started to plateau or fall, signalling the waning of a prolonged post-COVID travel boom and delivering a setback to airlines struggling with higher costs and limited aircraft availability.

In the third quarter, Lufthansa expects yields to be lower by a single-digit percentage from 2023 levels, while unit costs are expected to rise a similar amount, the company said in a statement.

"Due to the continued high demand for flights, this resulted in a significant year-on-year increase in capacity and sales volumes for our passenger airlines," Chief Executive Carsten Spohr said in an interim report.

"However, market-wide capacity growth intensified price pressure for the passenger airlines, causing yields to fall."

Analysts pointed to a more cautious approach to ramping up capacity at Lufthansa last year, meaning it has been hit harder by lower yields this year as its capacity expansion is swifter.

The group also pointed to a "normalisation" of ticket prices, which many airlines like Ryanair have said shows a particular price sensitivity among European consumers whose appetite for shelling out for travel at any cost is declining.

Overall, the company expects third-quarter adjusted earnings before interest and taxes (EBIT) to miss the prior-year level of 1.5 billion euros ($1.6 billion), due to challenges at its main-brand passenger business Lufthansa Airlines.

Lufthansa cut its profit target for the second time this year in July.

SPIRALLING COSTS

European airlines have already suffered a disappointing first quarter, with their woes around spiralling costs and struggling yields set to define the second quarter as well.

Last week, Air France KLM missed its profit forecast on higher costs that also plagued its first-quarter results, and falling profit at Ryanair sounded further alarm bells.

Lufthansa shares are down around 23% over the last six months as it struggles to recover its balance sheet.

On Wednesday, Lufthansa reported a group net result of 469 million euros in the April-to-June period, down by almost half on the corresponding period last year.

The group hopes to claw back revenue at Lufthansa Airlines, where delayed aircraft deliveries are disrupting fleet management and driving up repair costs for older planes, while wages have risen for staff in Germany after strikes that cost the group 100 million euros in second-quarter earnings.

($1=0.9239 euros)

(Reporting by Rachel More and Joanna Plucinska; Additional reporting by Ilona Wissenbach; Editing by Christopher Cushing and Clarence Fernandez)