Lufthansa trims expansion plans as profit miss hits stock

Bloomberg

Deutsche Lufthansa AG is paying the price of chasing market share in its own backyard as the cost of integrating jets from collapsed rival Air Berlin Plc weighs on earnings.
Lufthansa shares fell 9.5 percent, the biggest intraday drop in more than 2 years, after the German carrier’s latest results missed analyst estimates, forcing it to trim expansion plans to help bolster margins.
Lufthansa previously called the chance to snap up planes from Air Berlin the opportunity of a lifetime. While the move added passengers, the company has struggled to efficiently utilise the jets, racking up a bill from compensation for delays. Rival carriers are also targeting Germany, hurting fares, and the higher oil price has made the group’s thirsty four-engine jets more expensive to run.
“Clearly we’re unhappy, but we’re accepting the short-term costs that will translate into long-term benefits,” Chief Financial Officer Ulrik Svensson said on a call. The executive said he’s confident that unit costs, a key measure that showed an unwelcome jump in the third quarter, will still fall this year.
Lufthansa’s capacity growth this winter will now be limited to 8 percent, below German average, and will drop to 3.8 percent next summer from a prev- ious target closer to 6 percent.
The airline will invest about $284 million in having more reserve aircraft and staff available next summer. Expenses from compensation payments and work on acquired Air Berlin jets amounted to 520 million euros in the first nine months of 2018 as an overly ambitious flying program coincided with labour shortages as well as air traffic control strikes.
Lufthansa’s fuel expenses will rise by 850 million euros this year and by 900 million euros in 2019, disregarding capacity increases 2018 adjusted operating profit will be “slightly” below last year’s level; the figure fell 11 percent in the third quarter to 1.35 billion euros.