Europe’s airlines ought to be doing well: collapsing interest rates have made it easier than ever for them to carry their debts, and the price of fuel, one of their biggest headaches in recent years, is on the slide.
The reality is nowhere near as rosy, though.
Germany’s Deutsche Lufthansa AG (DLAKY) Thursday slashed its profit outlook for next year, due to the economic slowdown and higher pension costs. Instead of the €2 billion ($2.5 billion) operating profit expected until today, Lufthansa only expects “a significant improvement” on this year’s €1 billion.
It’s the second time this year that chief executive Carsten Spohr has lowered the outlook and comes after a wave of strikes by pilots against management plans to expand its in-house low-cost airline, and to make pilots work beyond 55 before qualifying for a full pensions. Those strikes–the most recent of which ended last week–have led to 5,900 flights being canceled since April, and have cost the airline €170 million so far.
Lufthansa said that even though it had an operating profit of €849 million in the first nine months, its forecast of €1 billion for this year was conditional on there being no further impact from strike action till the year-end.
The company’s shares fell 7% by lunchtime in Frankfurt.
The German carrier’s problems, though, pale in comparison to those at Air France, whose parent company (AFRAF) said Wednesday that operating profit fell 60% in the third quarter to €247 million after a 14-day pilots’ strike. That strike will cost it some €500 million in basic operating earnings this year, the Financial Times quoted chief financial officer Pierre-Francois Riolacci as saying.
As with Lufthansa, Air France pilots are trying to stop their own company from expanding an in-house low-cost airline to staunch the loss of market share to discount competitors such as RyanAir Plc (RYAAY) and Easyjet Plc.