Lufthansa halts its low-cost arm’s capacity growth as fare war bites

Bloomberg

Deutsche Lufthansa AG halted capacity expansion at its Eurowings low-cost arm after the group’s first-quarter margins were squeezed by rising fuel bills and overcapacity that’s sparked a Europe-wide fare war.
Europe’s biggest airline is abandoning plans to increase capacity at Eurowings by 2 percent this year. Lufthansa issued a profit warning that attributed a plunge in earnings before interest and tax on fuel prices, cheap airline tickets and tough comparisons with year-earlier figures.
The decision to dial back growth at Eurowings comes after the German carrier said
it would slow group capacity
increases to 1.9 percent this summer from the 3.8 percent previously planned in an effort to bolster prices. Revenues for airlines across Europe have been crimped by a capacity glut and fuel-price squeeze that’s forced eight airlines out of business since the summer.
“We are confident, though, that we will see a recovery in our unit revenues as early as the second quarter,” Lufthansa Chief
Financial Officer Ulrik Svensson said. “Our confidence is based above all on our favourable booking levels for the months ahead.”
The company has used Eurowings to defend itself from low-cost carriers in its home market, often racking up losses.
Having said that Eurowings will break even this year, its
parent needs to rein in growth to achieve this, according to Davy Research analyst Stephen Furlong.
The company said it still expects an adjusted earnings before interest and taxes margin of between 6.5 to 8 percent this year. Lufthansa anticipates that conditions in the aviation market will improve later this year.
The airline said it expects 2019 fuel costs at its network airlines to be $671 million higher than in 2018, above the 550 million euros it previously predicted. Lufthansa said
earnings at its cargo division slumped amid an ongoing contraction in global trade.