German carrier will slow capacity increases to 1.9% this summer from 3.8% to bolster prices and cope with limited extra flights

By BLOOMBERG

FRANKFURT • Deutsche Lufthansa AG cut its growth plans after a slide in fares and higher fuel costs weighed on 2018 earnings.

The stock fell the most in 4½ months yesterday after the German carrier said it will slow capacity increases to 1.9% this summer from the 3.8% previously planned in an effort to bolster prices and cope with limited room for extra flights at airports.

Lufthansa is putting a brake on expansion as it focuses on profitability after a year in which an industry-wide glut in seats combined with severe weather and air traffic control strikes to erode margins.

European rivals have warned that a fare war will make for a tough summer, with Ryanair Holdings plc, the region’s top discounter, cautioning last month that conditions could get tougher.

CEO Carsten Spohr said earnings had been held back despite the best revenue performance in Lufthansa’s history.

Capacity growth across the sector should slow to 3% in Europe this summer, providing some relief for yields, a measure of fares. Scope for German expansion is limited any way as air traffic controllers are recruited too slowly to cope with demand, he said.

Lufthansa dropped as much as 6.7%, the most since Oct 30, and was 5.2% lower at €21.66 as of 10:41am yesterday in Frankfurt.

That pares gains this year to 10% after the shares fell almost 36% in 2018.

The carrier’s adjusted earnings before interest and tax fell 7% to €2.8 billion (RM13.09 billion) last year, versus an average analyst estimate of €2.75 billion. The figure was boosted by a €122 million accounting gain from capitalising engine overhauls.

The company is targeting an adjusted Ebit margin of 6.5% to 8% for 2019, suggesting profitability may erode further from a 7.9% margin in the prior 12 months. Discount arm Eurowings is targeting breakeven after booking €170 million in costs from integrating jets from failed rival Air Berlin.

Bankhaus Metzler called the 2019 goals “unambitious” and cut its rating on the stock to ‘Sell’ from “Buy”. Liberum said the results had been “clouded” by the accounting change, while the guidance range was wider under the new format.

Fuel costs are expected to rise by €650 million, though that’s lower than previously forecast. Luf thansa on Wednesday said it would buy 40 new twin-engined widebody jets, helping it retire thirsty four-turbine models that many rivals have already eliminated. — Bloomberg