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Lufthansa narrows loss on fuel, cost-cuts plan

Frankfurt - Lufthansa reduced its loss for the seasonally weak first quarter by more than two-thirds after benefiting from lower fuel prices and cutting costs through the streamlining of its short-haul network.

The adjusted loss before interest and tax narrowed to €53m from €167m a year earlier, the German airline said in a statement on Tuesday. Analysts had forecast a shortfall of €71m, according to figures provided by the company.

Lufthansa reiterated that it expects earnings to rise only “slightly” this year compared with 2015 as weaker fares erode the benefits of fuel savings that increased by €237m in the quarter.

Europe’s third-largest carrier has split its airline operations in two, separating hub-based network brands from low-cost services provided by the Eurowings discount division.

A push to expand Eurowings into a competitor for low-cost leaders Ryanair and EasyJet has met with resistance from unions, and walkouts have held back profit the past two years.

Positive reception

Still the Eurowings result was €33m below its prior-year level, reflecting start-up costs for long-haul flights, according to the company, while the main Lufthansa brand lifted earnings by €244m.

A seat-occupancy rate of 94.2% nevertheless shows that the expanded discount arm is “off to a successful start,” with customer feedback “very positive,” chief financial officer (CFO) Simone Menne said on a conference call.

Group-wide unit costs declined 4% in the quarter, with about half that gain coming from sustainable measures, Menne said, adding that the company has “turned the trend.” Lufthansa also benefited from the absence of a year ago expense of €100m attributable to strike costs and write-downs on the Venezuelan bolivar.

Capacity growth in 2016 will be limited to 6%, down from the 6.6% forecast earlier, as pricing pressures remain “significant,” and Lufthansa could trim growth further, Menne said. Yields, which reflect average ticket prices, declined by 6.3%, the biggest quarterly drop in more than 4 years.

Bookings delayed

While terror attacks across Europe have prompted some customers to delay bookings, that trend caused “no relevant declines” at Lufthansa, the CFO said. That’s after British Airways owner IAG SA, which  said last week that bookings are being hurt by the Brussels bombings, as well as weaker demand from oil-based economies and the possibility of the UK exiting the European Union.

Lufthansa reiterated that fuel expenses should decline by €1bn this year, and continues to target a reduction in unit costs. The company’s cargo operations, among the industry’s largest, have been hit by overcapacity and won’t now improve profit this year, it said.

European airlines frequently post losses in the first quarter, which falls between the Christmas and New Year period and the summer high season, though IAG, which is more advanced in its short-haul restructuring, said last week that operating profit increased more than six-fold to €155m.

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