Lufthansa gives cautious outlook as fuel and Eurowings weigh

[March 14, 2019]   By Ilona Wissenbach

FRANKFURT (Reuters) - Lufthansa issued cautious guidance on Thursday for revenue and profitability this year as it battles rising fuel costs and strives to erase losses at budget carrier Eurowings, sending its shares down 5 percent.

Germany's biggest airline will, however, avoid disruption to its operations after safety regulators around the world grounded Boeing's 737 MAX aircraft after an Ethiopian Airlines crash last weekend. Lufthansa does not fly the model.

"If there is any doubt, then grounding is the only right decision," Spohr told a news conference after Lufthansa reported an 11 percent decline in fourth-quarter operating profit.

Lufthansa dialed back expectations for growth in peak summer capacity to 1.9 percent.

For 2019 as a whole, revenue should grow by 4-6 percent, with operating margins forecast at 6.5-8 percent. Both forecasts implying performance that is in line with or slightly weaker than last year.

The downbeat view capped a year in which crew shortages and scheduling glitches caused summer holiday chaos at airports across Europe while Lufthansa also struggled to digest its takeover of the bulk of low-cost carrier Air Berlin's fleet.

SECOND HELPING

The Air Berlin deal removed a key competitor in Lufthansa's home market, but integration costs have undercut the record annual profit at Lufthansa's carriers, which include SWISS and Austrian Airlines.

German airline Lufthansa's Chief Financial Officer Ulrik Svensson attends the company's annual news conference in Frankfurt, Germany March 14, 2019. REUTERS/Ralph Orlowski

That, in turn, has weighed on Lufthansa's share price, which has declined by 17 percent over the past 12 months. That compares with a 5 percent decline for Germany's blue-chip DAX index over the same period.

Still, Lufthansa has been linked to possible further sector consolidation, with an aviation website saying it was close to buying charter carrier Condor from Britain's Thomas Cook.

Asked about a possible deal, Spohr said this would depend on the price sought by Thomas Cook and the view taken by European Union antitrust regulators.

At Eurowings, which took over large parts of Air Berlin's fleet, management is targeting breakeven in 2019 and a significant improvement from a year earlier, Lufthansa said.

Lufthansa, which employs more than 135,000 people, will also cut costs to cover an estimated 650 million euros in extra spending resulting from higher jet fuel prices this year.

(Writing by Douglas Busvine; Editing by Shri Navaratnam and David Goodman)

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