Lufthansa, Wizz slide on cost pressures, capacity plan pullbacks

BLOOMBERG

Deutsche Lufthansa AG and Wizz Air Holdings Plc slid after reporting robust quarterly results, as investors focused in on capacity constraints and cost pressures that will prevent the carriers from taking full advantage of demand for air travel.
Lufthansa, Europe’s biggest airline group, said that cost inflation is being driven by a rise in air traffic control and airport charges, as well as higher expenses tied to maintenance and spare parts. The German company said 13 of its aircraft will need to be idled in the coming months over issues tied to Pratt & Whitney geared turbofan engines.
At Wizz, the engine defects disclosed by Pratt are also cutting into capacity growth, though like Lufthansa the Hungarian budget carrier is also pulling back on flights intentionally to keep ticket prices high.
“Even if we have to absorb more costs in the system, capacity scarcity in an off peak period results in a yield opportunity,” Chief Executive Officer Jozsef Varadi said on a conference call, referring to a common airline-industry measure of ticket-price strength.
Lufthansa shares fell as much as 7.3% in Frankfurt, while Wizz slumped as much as 7.5%. It was the worst intraday performance for both companies since March.
The issues, while varying slightly by carrier, are similar to those disclosed at Air France-KLM.
Shares of the Franco-Dutch carrier slid after paring back its outlook for capacity because of aircraft shortages tied to maintenance delays and parts shortages, and saying costs were hit by higher labour, fuel and materials costs.
Unit costs at Lufthansa rose 7% in the second quarter, partly because of one-time expenses tied to expanding flight operations and stabilise operations, the company said.