Lufthansa's Profit Outlook Slashed Amid Industry Struggles
Lufthansa has adjusted its profit forecast for the year, anticipating a lower range of €1.4 billion to €1.8 billion, down from the original €2.2 billion. This downward revision is attributed to increasing costs and declining ticket prices. Delta Air Lines is also grappling with challenges, experiencing a 9.1% decrease in shares due to a fare war and underwhelming earnings. Notably, Lufthansa's stock has plunged by 29% this year, positioning it as the worst performer on the Bloomberg World Airlines Index.
The aviation sector is encountering difficulties as it enters the peak summer travel season. Delta has issued warnings regarding the struggle to fill planes, while Norwegian Air is confronting delays in Boeing aircraft deliveries. Lufthansa’s financial predicament is further compounded by a comprehensive turnaround program initiated to confront these issues.
Delta's CEO, Ed Bastian, highlights that an oversupply of flights has spurred intense discounting, particularly prevalent during the June to August period. This not only impacts Delta but also affects other major US carriers and global competitors like IAG SA and Lufthansa.
Lufthansa's stock decline marks the second downgrade since April, initially triggered by extended strikes. The airline is slated to release its complete financial earnings on July 31. Meanwhile, Delta is maintaining its full-year earnings projection of $6 to $7 per share despite escalated expenses, including a $500 million surge in labor costs and a $350 million increase in maintenance expenditures.
Key Takeaways
- Lufthansa adjusts profit outlook to €1.4-€1.8 billion from €2.2 billion due to higher costs and decreasing ticket prices.
- Delta Air Lines reports weak earnings and a fare war, resulting in a 9.1% drop in shares.
- Lufthansa's stock plummets 29% this year, positioning it as the poorest performer on the Bloomberg World Airlines Index.
- Delta anticipates adjusted earnings between $1.70 and $2 per share, falling short of analyst estimates.
- Both airlines encounter challenges from surplus supply and substantial discounting within the industry.
Analysis
The financial challenges faced by Lufthansa and Delta emanate from industry-wide overcapacity and aggressive pricing, exacerbated by escalating operational expenses. This downturn has ripple effects on investors and suppliers, with Lufthansa's stock leading the losses. In the short term, sustained volatility and profit pressures are anticipated. In the long term, industry stabilization might be achievable through consolidation or strategic pivots, although regulatory and labor obstacles persist.
Did You Know?
- Bloomberg World Airlines Index:
- The Bloomberg World Airlines Index tracks the performance of major publicly traded airline companies globally, serving as a benchmark for investors to gauge the overall health and performance of the airline industry.
- Fare War:
- A fare war denotes airlines engaging in aggressive pricing competition to allure passengers, often by significantly reducing ticket prices. This can diminish airlines' profitability and is typically a response to excess capacity or heightened competition.
- Turnaround Program:
- A turnaround program is a strategic initiative undertaken by a company to enhance its financial and operational performance. In the context of Lufthansa, this involves implementing measures to address rising costs, falling ticket prices, and other challenges to restore profitability and competitiveness.