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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  EasyJet    EZJ   GB00B7KR2P84

EASYJET

(EZJ)
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Lufthansa profit warning spooks European airline sector

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06/17/2019 | 05:58am EDT
FILE PHOTO: Lufthansa planes at Fraport airport in Frankfurt

FRANKFURT (Reuters) - Germany's Lufthansa sent shockwaves through the European airline sector on Monday as it cut its full-year profit forecast, with lower prices and higher fuel costs compounding the effect of losses at its budget subsidiary Eurowings.

The warning follows gloomy comments last month from Irish budget airline Ryanair, which vies with Lufthansa for top spot in Europe in terms of passengers carried. Air France-KLM also reported a widening quarterly loss last month.

In a statement issued late on Sunday, Lufthansa forecast annual EBIT of between 2 billion euros (£1.8 billion) and 2.4 billion euros, down from the previously targeted 2.4 billion euros to 3 billion euros.

"Yields in the European short-haul market, in particular in the group's home markets, Germany and Austria, are affected by sustained overcapacities caused by carriers willing to accept significant losses to expand their market share," it said.

European airlines are locked in a battle for supremacy, with a surfeit of seats holding down revenues and higher fuel costs adding to the pressure. A number of smaller airlines have collapsed over the past two years.

Lufthansa cited falling revenue from its Eurowings budget business as a key reason for the profit warning.

"The group expects the European market to remain challenging at least for the remainder of 2019," it said.

It also pointed to high jet fuel costs, which it said could exceed last year's figure by 550 million euros, despite a recent fall in crude oil prices.

Shares in Lufthansa hit a two-year low of 15.40 euros for their highest intraday loss in three years. They were down 12% at 15.55 euros by 0900 GMT.

Rivals were also caught up in the turbulence, with shares in Ryanair, British Airways owner IAG, Wizz Air, Air France and Easyjet falling by up to 4.4%.

FIGHTING OVER PASSENGERS

Ryanair Chief Executive Michael O'Leary last month warned of the impact of what he called "attritional fare wars" and said four or five European airlines were likely to emerge as the winners in the sector.

"No signs that anyone is prepared to reduce capacity, therefore we would anticipate the wave of consolidation in European short haul is not over," said analyst Neil Wilson, analyst at London-based broker market.com.

Earlier this month global airlines slashed a widely watched industry profit forecast by 21% as an expanding trade war and higher oil prices compound worries about an overdue industry slowdown.

Lufthansa's problems are centred on its European business, with a more positive outlook for its long-haul operations, especially on transatlantic and Asian routes.

Eurowings management is due to implement turnaround measures to be presented shortly, Lufthansa said, adding that efforts to reduce costs had so far been slower than expected.

Lufthansa's adjusted margin for earnings before interest and tax (EBIT) was forecast between 5.5% and 6.5%, down from 6.5% to 8% previously, it said in a statement.

Lufthansa also said it would make a 340 million euro provision for in its first-half accounts, relating to a tax matter in Germany originating in the years between 2001 and 2005.

The Network airlines unit -- its core brand, Swiss and Austrian Airlines -- is expected to reach an adjusted EBIT margin of between 7% and 9%, down from 7.5% to 9.5%. For its Eurowings business, the forecast was for between minus 4% and minus 6%, against about flat previously.

(Reporting by Vera Eckert; Editing by David Goodman and Keith Weir)

By Vera Eckert

Stocks mentioned in the article
ChangeLast1st jan.
EASYJET 2.23% 1100 Delayed Quote.-0.45%
INTERNATIONAL CONSOLIDATED AIRLINES GROUP, SA -1.29% 450.1 Delayed Quote.-27.17%
LUFTHANSA GROUP AG 0.87% 15.055 Delayed Quote.-23.58%
RYANAIR HOLDINGS -1.75% 9.982 Delayed Quote.-5.49%
WIZZ AIR HOLDINGS PLC 0.97% 3626 Delayed Quote.29.41%
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Financials (GBP)
Sales 2019 6 340 M
EBIT 2019 462 M
Net income 2019 336 M
Debt 2019 347 M
Yield 2019 3,97%
P/E ratio 2019 12,9x
P/E ratio 2020 11,4x
EV / Sales2019 0,74x
EV / Sales2020 0,73x
Capitalization 4 350 M
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Mean consensus HOLD
Number of Analysts 27
Average target price 1 157,08  GBp
Last Close Price 1 100,00  GBp
Spread / Highest target 36,4%
Spread / Average Target 5,19%
Spread / Lowest Target -13,6%
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Managers
NameTitle
Johan Peter Lundgren Chief Executive Officer & Director
Robert John Orr Barton Chairman
Margaret Christine Browne Chief Operating Officer
Andrew Robert Findlay Chief Financial Officer & Executive Director
Paul Albin Finance Director
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