German Price War Blamed For Lufthansa Group Earnings Drop

The Lufthansa Group has said that a German price war was to blame for a drop in their earnings during the second quarter. The accusation came at the Groups second quarter earnings call released earlier today.

Lufthansa landing
Lufthansa blames German price war for declining profits. Photo: Simple Flying

The Lufthansa Group comprises Germany’s Lufthansa, Swiss Austrian Airlines and low-cost carrier Eurowings.

Stiff competition from Ryanair and easyJet is likely to continue

After issuing a profits warning last month, Lufthansa announced that stiff price competition from Ryanair and easyJet was likely to continue for the rest of 2019.

Ryanair 737-800
Lufthansa’s Eurowings faces still competition from Ryanair and easyJet. Photo: Wikimedia

Blaming tough competition from low-cost carriers on its short-haul routes and rising maintenance and fuel costs, Lufthansa adjusted its projected earnings to 754 million euros ($839.73 million).

The Lufthansa Group net profit was down 70% to 226 million euros, due in part to a nearly 200 million euro tax provision. The Lufthansa Groups share price has dropped by around a third in the past year.

Lufthansa blames short-haul routes out of Austria and Germany

When speaking about the declining profits Chief Financial Officer Ulrik Svensson was reported by Reuters as saying,

“Our earnings are feeling the effects of tough competition in Europe and sizeable overcapacities, especially on our short-haul routes out of Germany and Austria.”

Lufthansa Group is expecting tough competition from low-cost airlines Photo: Simple Flying

The Lufthansa Group has reacted by cutting costs and implementing a new plan for Eurowings which it hopes will turn the airline into a sustainable low-cost carrier. When referencing Ryanair and easyJet, Svensson said,

“We are expecting that we will indeed have a very tough price-competitive situation with these carriers for the rest of the year and maybe also into 2020.”

Low-cost Irish carrier Ryanair told the Business Traveler that its profits in Germany were down as well, blaming Lufthansa’s purchase of Air Berlin and them, then “selling this excess capacity at below cost prices.”

Eurowings to concentrate on short-haul routes in Germany

Back in June, the Lufthansa Group announced that it was going to scrap Eurowings long-haul flights to Thailand and the United States by passing them on to other airlines in the group.

Eurowings to concentrate on short-haul routes out of Germany Photo: Simple Flying

Eurowings CEO Thorsten Dirks said this would now allow the airline to concentrate on its bread and butter routes out of Hamburg and Dusseldorf. He also said that they would look to emulate Ryanair’s and easyJet’s business models of making revenue from ancillary fees.

As for the long-haul side of the Lufthansa Groups business things are running smoothly with the Group saying that it is enjoying “continuing strong performance in its long-haul business … particularly on its key North American and Asian routes.”

The Group also said recently that they would like to see more of their product in the Chinese marketplace while also expanding the codeshare agreement with Hong King’s Cathay Pacific.