Shares in Lufthansa Germany’s largest airline tumbled 5 per cent in morning trading in Germany today to hit a 2-month low.
The decline comes after the company outlined plans at the weekend for a 4 per cent capacity growth in 2017 and estimated its fuel costs would rise to €5.3 billion (Dh20.48bn) in 2017, from €4.9bn in 2016.
The group had previously predicted a 2016 fuel bill of €4.85bn and said fuel costs had risen more than expected in the fourth quarter due to the rising oil price and a strengthening dollar.
Lufthansa’s update served as a reminder that without fuel price tailwinds, earnings growth remains a challenge, Credit Suisse said.
The Kepler Chevreux analyst Ruxandra Haradau-Doser said he believes inbound traffic to Europe and Lufthansa’s home markets will remain weak at least in the first half of 2017 given the continued terrorist threats.
The warnings from analysts come after UBS downgraded to “sell” on Friday, saying it was concerned that yields – a measure of pricing – would remain negative in 2017; 17 of 27 brokerages now rate the stock “sell” or lower.
Lufthansa was the biggest faller on Stoxx 600 index and on German blue-chip index DAX.
The carrier said in an investor presentation on Friday that its network airlines – Lufthansa, Austrian and Swiss – would grow the number of seats on offer by 3 per cent, while Eurowings would grow 19 per cent.
Including recent deals to lease 38 planes and crew from Air Berlin plus take over Brussels Airlines, group growth would be a reported 12.5 per cent, according to the company.
Expanding Eurowings is Lufthansa’s response to the rise of low-cost carriers in Europe, notably Ryanair, which is set to usurp Lufthansa as Europe’s largest carrier by passenger numbers, after the Irish budget airline said it carried 117 million people last year, a 15 per cent increase on 2015.
Up until the end of November the Lufthansa group had carried almost 102 million passengers and typically carries 8 million to 9 million in the last month of the year, meaning it is unlikely to catch Ryanair when it reports annual passenger numbers tomorrow.
Showing a wish to take some capacity out of the market as well, Lufthansa said that of the 33 A320 planes coming to Eurowings from the Air Berlin lease deal, up to 20 would be used to replace existing Eurowings planes that currently run at higher costs.
Lufthansa also confirmed a forecast for 2016’s adjusted earnings before interest and tax (ebit) to remain around 2015’s level of €1.8bn. It is expected to give a first forecast for 2017 profit when it reports full-year results in March.
Barclays analysts earlier said they expected it would be difficult for Lufthansa to maintain adjusted ebit at 2016 levels this year, given rising fuel prices.
* Agencies
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