Lufthansa ups forecast on premium-class bookings

Bloomberg

Deutsche Lufthansa AG raised its 2016 profit forecast after premium-class bookings beat the airline’s expectations and as fuel costs decline. The stock rose the most in eight years.
Adjusted earnings before interest and taxes this year will about match the 2015 figure, bolstered by a projected decrease of 140 million euros ($154 million) in fourth-quarter fuel expenses, the German airline said in a statement. That contrasts with Lufthansa’s pessimism in July, when terrorist attacks and political turmoil in Europe prompted the carrier to forecast that profit would fall rather than rise this year.
Europe’s carriers have been battling a drop-off in demand after a string of attacks in the region deterred travelers from flying, especially on lucrative routes from the U.S. and China. A decline in long-term bookings prompted Lufthansa to scale back capacity growth, measures which the airline said Wednesday have been successful. Other steps the airline has been taking to shore up profit include shifting more of its services to the Eurowings discount brand and pushing for savings in new labor contracts.
“Clearly things are less bad than we had been thinking, and that goes not just for Lufthansa but for all the regular network airlines like Air France-KLM and IAG,” the owner of British Airways and Iberia, said Yan Derocles, an analyst at Oddo Securities in Paris. “Moreover, the capacity increases this fall are a bit weaker than what we’d seen in the summer, so that means there’s less pricing pressure.”
Lufthansa jumped as much as 10 percent, the steepest intraday gain since October 2008, and was trading up 7.3 percent at 11.22 euros as of 9:44 a.m. in Frankfurt. That pared the stock’s decline this year to 23 percent, valuing the company at 5.23 billion euros. Air France-KLM Group, Europe’s biggest airline, rose 3.7 percent in Paris while shares of discount operator Norwegian Air Shuttle ASA increased 4.6 percent in Oslo.
Nine-month adjusted Ebit at Lufthansa fell 0.9 percent to 1.68 billion euros, while revenue declined 1.6 percent to 23.9 billion euros, according to preliminary figures, the German carrier said. The company, which has its main flight hub in Frankfurt, is scheduled to publish earnings details on Nov. 2. Revenue is likely to decline 7 percent to 8 percent this quarter, a percentage point worse than previously forecast, the airline said.
Forecasting last-minute bookings “remains challenging” and may lead to earnings volatility, as geopolitical uncertainties are still weigh on sales, particularly on long-haul flights to Europe, it said.
Lufthansa has been reorganizing to confront growth at discounters including Ryanair Holdings Plc, EasyJet Plc and Norwegian Air Shuttle. It reached agreements in September to acquire full control of its Brussels Airlines NV affiliate and take over 35 aircraft from struggling competitor Air Berlin Plc to expand Eurowings’ fleet. The company, which concluded pay and retirement deals with other employees earlier this year, faces a strike risk after failing to conclude a contract with pilots.
“Whilst today is clearly a positive for shares, we are not immediately convinced that anything has structurally changed,” as Lufthansa still faces domestic low-cost carrier competition, overcapacity on both short- and long-haul markets and “an intractable mainline cost base,” analysts at Deutsche Bank AG, including Anand Date and Andy Chu in London, said in a report to clients.