Deutsche Lufthansa AG forecast rising profit through year-end, though the shares slid as a surge in costs will offset some of the benefits of strong demand.
(Bloomberg) — Deutsche Lufthansa AG forecast rising profit through year-end, though the shares slid as a surge in costs will offset some of the benefits of strong demand.
Third-quarter earnings will come in above the pre-pandemic level of €1.3 billion ($1.42 billion), Europe’s biggest airline group said in a statement Thursday. That will help to propel full-year earnings to above €2.6 billion.
However, Lufthansa’s pricing power on fares is running in parallel with a jump in its own costs. Unit costs rose 7% in the second quarter, partly because of one-time expenses tied to expanding flight operations and stabilize operations.
The shares slid as much as 4.8%, and were down 4.4% as of 9:23 a.m. in Frankfurt.
The German airline is the last of Europe’s large network carriers to report second-quarter results. Like at Air France-KLM, Lufthansa’s capacity constraints will prevent it from taking full advantage of strong demand. British Airways parent IAG SA reported profit and revenue that beat estimates, helped by higher ticket prices.
Shares of Wizz Air Holdings Plc also slipped after the budget carrier lowered its outlook for capacity growth on Thursday.
Read more: Air France-KLM Slumps on Dim Capacity Outlook Amid Jet Delays
At Lufthansa, cost inflation is being driven by higher air traffic control and airport charges, and maintenance and spare parts. The company said it plans to offer 85% of its pre-crisis capacity in the final quarter, in line with previous statements.
Still, healthy summer demand helped the airline to almost triple adjusted earnings before interest and taxes to €1.1 billion in the second quarter, in line with analysts’ estimates. Revenue was up 17% from a year earlier.
Lufthansa expects demand for flying to remain robust for the remainder of the year with bookings for the late summer and early winter seasons at 90% of pre-pandemic levels.
Corporate travel has yet to fully recover from pre-pandemic levels, and will remain below 2019 levels through year-end, while the boom in air-cargo earnings tied to Covid disruptions is cooling. Lufthansa said second-quarter profit in the segment dropped more than 90% to €37 million from a year earlier.
The German airline aims to get as close to an 8% earnings margin it’s targeting for 2024 by the end of this year, Chief Financial Officer Remco Steenbergen said in the statement. That would help the company pay down debt incurred during the coronavirus pandemic.
(Updates with details on IAG, Air France-KLM earnings)
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