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Lufthansa warns Eurowings expansion will hit profit gains

Lufthansa is planning to “substantially” expand its low cost airline Eurowings with new routes and a focus on long haul operations.

The German airline said expansion along with “intensified” competition from low cost rivals such as Ryanair and Easyjet will mean a “significant” reduction in yields and put pressure on ticket prices.

In its annual financial report Lufthansa forecast slightly higher profits this year than 2015 despite lower fuel prices, although cost reductions are also expected. It adds that this forecast doesn’t include any earnings impact from possible strikes.

Lufthansa chief financial officer Simone Menne said: “We will not be unduly influenced by the current low fuel costs. They will provide a welcome tailwind for our 2016 results but cost discipline remains one of our paramount tasks.”

Menne said the terrorist attacks in Paris and Tunisia had affected revenues and also changed booking behaviour as travellers are starting to book later.

“We see caution on forward bookings, but we aren't seeing fewer passengers. It's a change in booking trends," she said.

Lufthansa CEO Carsten Spohr said 2015 was an “emotionally challenging year” with the Germanwings tragedy. He also said strikes were a “further burden”.

He remained positive for the remainder of the year with plans to grow capacity where structures are competitive.

“2015 was a good year in economic terms,” Spohr said. “The doubling in the passenger airlines’ result is not only due to lower fuel costs, but also to the favorable developments in our passenger volumes and to our capacity discipline.”

This week Lufthansa filed a lawsuit against GDS provider Sabre over a contract dispute relating to the €16 GDS charge.

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