Germany’s Lufthansa cuts 2024 profit target for a second time

Deutsche Lufthansa (LHAG.DE) slashed its 2024 earnings guidance for a second time and issued a profit warning for its second quarter on Friday as one of Europe’s top airlines struggles with low returns and operations problems.

The warning underscores worries about a weaker-than-expected quarter for airlines as they struggle with high labour and operating costs as well as weak average revenue per passenger due to pressure on ticket prices.

Shares in Lufthansa fell as much as 3.8 per cent and pulled lower British Airways-owner IAG (ICAG.L) by 2.7 per cent, easyJet by almost 1 per cent and Air France-KLM (AIRF.PA) by nearly 2 per cent at 1213 GMT.

Lufthansa expects adjusted 2024 earnings before interest and taxes (EBIT) between 1.4 billion euros ($1.5 billion) and 1.8 billion, down from a previous target of about 2.2 billion.

It said the group’s second-quarter adjusted EBIT fell by more than a third to 686 million euros. It reports second-quarter results on July 31.

“A comprehensive turnaround program is being launched” affecting its Lufthansa brand and regional carrier Cityline, the company said, adding that its core brand was particularly hit by negative market trends.

“A market-related decline in yields in all traffic regions – especially in Asia – had a negative impact,” it said.

Lufthansa had issued a profit warning for its first quarter in April amid rising expenses tied to strike. It also cited “inefficiencies in the flight operations” of Lufthansa and Cityline, and delayed aircraft deliveries.

UNSURPRISING

Equity analysts said Lufthansa’s decision was not surprising, given its cost challenges and delivery delays from planemakers Airbus (AIR.PA) and Boeing (BA.N) that have impacted the aviation sector.

In a letter to staff earlier this week, Lufthansa flagged operational cost cuts due to a more competitive landscape and as lower corporate travel erodes unit revenue.

“That kind of weakness in unit revenue is assumed to continue into the third, fourth quarter, hence this turnaround programme they’re planning on,” Stephen Furlong, an analyst at Davy, told Reuters.

Other carriers, including Ryanair (RYA.I), have warned of a slower rise in ticket prices than expected, with Air France-KLM (AIRF.PA) saying in its first quarter that it was struggling with higher unit costs.

($1 = 0.9184 euros)