Skip to Content

Here’s Why Lufthansa’s Shares Are Tanking Today

Air Berlin Plc Flight Operations At Duesseldorf AirportAir Berlin Plc Flight Operations At Duesseldorf Airport
Lufthansa is having to move more traffic to its lower-margin Eurowings brand to stay competitive.Bloomberg Bloomberg via Getty Images

 

Shares in Germany’s biggest airline group Deutsche Lufthansa plummeted Thursday after the company said that a wave of strikes and low-cost competition hurt it even more than analysts had thought.

The company missed analysts’ expectations for full-year profit by more than 10%, and said it only expected a small increase in profits this year despite enjoying the lowest fuel prices in over a decade and strong global demand for air travel.

Its shares fell nearly 7% in morning trading in Germany in reaction, even though the company said it would resume dividend payments.

The threat from low-cost competition such as Ryanair Plc (RYAOF) and Easyjet (EJTTF) means that Lufthansa is having to move more and more of its business to its own in-house low-cost brand Eurowings.

Lufthansa forecast a significant decline this year in yields, a key industry measure of revenues per mile per passenger, due also to the expansion of Eurowings on long-haul routes. Chief Financial Officer Simone Menne told journalists she could not see yields in Europe improving any time soon.

 

The group is still struggling to reach agreement with staff on new pay and pension deals, with last year seeing both pilot and cabin crew strikes, costing the carrier 231 million euros in lost earnings in 2015. Overall, earnings before interest, taxes, depreciation and amortization rose to 1.82 billion euros ($2.06 billion), short of the 2.08 billion forecast. Unit costs, excluding fuel and currency effects, rose 2.4 percent in 2015.

“We remain concerned the group is struggling to deal with multiple strategic challenges, with cheaper fuel masking the problems in the short term,” Liberum analyst Gerald Khoo, who has a “sell” rating on the stock, wrote in a note.

Menne was reluctant to give a precise forecast for the year, owing to high current levels of uncertainty. Attacks on popular tourist destinations, from Paris to Tunisia and Turkey, have knocked traveler confidence at the start of the year.

Menne said people were still traveling, albeit booking tickets later.

“We see caution on forward bookings, but we aren’t seeing fewer passengers. It’s a change in booking trends,” she said.

Reuters contributed to this report.