Lufthansa sees difficult second half as terror damps demand

Bloomberg

Deutsche Lufthansa AG’s average ticket prices fell in the second quarter as a drop in demand stemming from terrorist attacks in Europe was met by too much seating across the airline industry.
Yields excluding currency fluctuations, a measure of average fares, declined 0.8 percent in the second quarter, the German carrier said Tuesday. That caused unit revenue, the average sales generated per seat kilometer flown, to decline by 4.1 percent in the period, with the decline about doubling to between 8 percent and 9 percent in the second half.
“The difficulty is the uncertainty in the market,” Chief Financial Officer Simone Menne said on a call with journalists. “We have very poor visibility, and we miss group bookings from Asia and the U.S. Due to those missing bookings there is tension in the market and price pressure, and that is exacerbated by the low oil price.”
Prospects for Europe’s airlines have deteriorated after carriers added capacity in response to cheap fuel costs. Terrorist attacks from Paris to Istanbul since early 2015 have damped demand, while consumer uncertainty has also increased with the U.K.’s vote in June to leave the European Union. Since then, carriers including British Airways owner IAG SA, EasyJet Plc and Lufthansa have warned that they’ll miss profit targets.
Lufthansa reversed its full-year earnings forecast on July 20, predicting a decline in operating profit rather than the “slightly higher” figure predicted earlier. Terror attacks and political and economic uncertainty hurt advance bookings, especially on long-haul routes into Europe, the carrier said at the time, trimming its capacity-growth plan for 2016 to 5.4 percent from 6 percent.
Adjusted earnings before interest and taxes fell 8.3 percent to 582 million euros ($651 million) in the second quarter, the airline said.
Unadjusted Ebit in 2016 will be “several hundred million euros” higher than the adjusted measure, meaning Lufthansa will be capable of paying a dividend, Menne said. The second-quarter unadjusted figure totaled 567 million euros.