Lufthansa profits nosedive as bookings fall away

German airline says it is flying blind on ticket-buying trends as Brexit turmoil and spate of terror attacks in Europe hurt earnings.

Lufthansa aircraft are parked on the tarmac during a strike by cabin crew union (UFO) at Frankfurt airport, Germany. The airline is in talks with unions over pay and conditions. Ralph Orlowski / Reuters
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Lufthansa said it will focus on reducing costs this year after attacks deterred travellers from booking trips and resulted in a profit warning for the German airline group.

The carrier two weeks ago lowered its profit target for the year and trimmed growth plans after bookings on long-haul routes to Europe were down after a series of attacks in Europe and political turmoil following Britain’s vote to leave the European Union and a failed coup in Turkey.

“We don’t have any visibility on how people are booking, and we’re losing group bookings from Asia and the United States due to travel warnings,” said the chief financial officer Simone Menne after the carrier reported full second-quarter results.

Net profit was €429 million (Dh1.76 billion), compared with €954m in the year-earlier period, when profits were boosted by €503m through the early conversion of a convertible bond.

Adjusted earnings before interest and taxes – the company’s usual profit gauge – rose €61m to €529m.

Other major European airlines have been knocked by attacks and the Brexit vote and have cut back on planned growth as a result of pressure on prices.

Last week Air France-KLM said it was concerned about the attractiveness of France, warning attacks would hit revenue, while British Airways owner IAG gave a cautious outlook for the year and said corporate travel demand remained subdued following the Brexit referendum.

Lufthansa said on Tuesday that it aimed to reduce unit costs, excluding fuel and currency, by between 2 and 3 per cent in the second half of the year.

“We expect the high pricing pressure to continue … This is why we will push on our efficiency increases even more consistently,” said the chef executive Carsten Spohr.

In the first half of the year, unit costs fell 1.3 per cent. Lufthansa has agreed a new pay and pensions deal with cabin crew and on Monday said it was extending talks on pay and conditions with its pilots.

Lufthansa expects 2016 adjusted earnings before interest and tax (ebit) to be below that of last year, when it made just over €1.8bn.

But it said it still expected to be able to pay a dividend for this year, because ebit should be above last year, partly thanks to the cabin crew deal that will help reduce its pension costs.

“The key performance figures show we will be technically capable of making a payout,” Ms Menne said, although added the final decision was up to the supervisory board.

Lufthansa has flexibility when it comes to deferring plane deliveries thanks to the large number of planes it has on order at the minute, but can also take advantage of delivery problems at manufacturer Airbus, Mr Spohr said on Tuesday.

Lufthansa is expecting to take delivery of 52 planes this year and over 40 next year, he said.

“Whenever you call Airbus and tell them you want to take an A320neo or A350 later, they don’t complain,” Mr Spohr said.

Deliveries of the A320neo have been delayed by engine issues while the A350s have been held up by shortages of seats and, most recently, botched toilet doors.

The Indian budget airline IndiGo also might have to delay taking delivery of more Airbus A320neo planes to allow Pratt & Whitney time to sort out engine problems, the carrier’s owner said on Monday.

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