Lufthansa Cuts 2015 Forecast on Global Economic Downturn

Deutsche Lufthansa AG has cut its forecast for operating profit next year as weaker economic growth weighs on ticket prices and competition increases.

Operating income will not rise to match an earlier forecast for about two billion euros ($2.52 billion) in 2015, the Cologne-based company said in a statement on Monday, 10 November. Instead, earnings will be “significantly higher” than 2014, it said. Lufthansa reiterated a target for operating profit to increase to about one billion euros this year.

Reduced expectations for global economic growth and an increase in Lufthansa’s pension costs mean Chief Executive Officer Carsten Spohr is cutting the company’s 2015 profit forecast for a second time since taking the helm in May. Lufthansa has endured a wave of strikes this year by pilots who are demanding the airline maintains retirement payments.

“Lufthansa’s vague guidance revision for next year reflects the numerous challenges ahead for the airline,” said Jack Diskin, an analyst at Goodbody Stockbrokers in Dublin, in a note. “Operational pressures persist across the entire network, so the cut does not surprise us. Weak demand, ongoing strike risk, and now staff cost charges associated with an inflated pension revaluation are all headwinds.”

Analysts are predicting operating profit of 1.57 billion euros next year, the average of 12 estimates in a Bloomberg survey. Lufthansa shares have fallen 22 percent this year, the worst performance in the six-member Bloomberg EMEA Airlines Index, which declined by 6.1 percent. Third-quarter sales rose 1.9 percent to 8.46 billion euros, while net income climbed 25 percent to 561 million euros.

“When we look ahead, we see the economic slowdown and the continuing declines in our passenger yields in the face of fierce competition,” Chief Financial Officer Simone Menne said, referring to a measure for average ticket prices.

The 2014 forecast includes the impact of the work stoppage, which Lufthansa said came in at about 170 million euros. Costs of any additional walkouts this year have not been factored into the outlook for 2014, the airline said.

As mentioned in Lufthansa’s statement, fuel expenses will amount to 6.7 billion euros this year, unchanged from a forecast in July, as volatility in prices and hedging measure mean the company does not fully enjoy the benefit from falling oil prices.

Air France KLM Group said on Monday that a walkout by pilots in September reduced operating profit by 330 million euros in the quarter, and said bookings remain weaker than usual.