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Published on Monday, June 17, 2019

Airline shares hit as Lufthansa issues profit warning

Airline shares were put under pressure yesterday after Lufthansa issued a surprise profit warning.

Lufthansa blamed 'market-wide overcapacities' and 'aggressively growing low cost competitors' in Europe for a downgrading in its profit forecast this year.

In an announcement to investors, the Executive Board of Lufthansa Group said strong performance in long haul would only partly offset the price deterioration in Europe.

It now expects its EBIT margin to be 5.5% to 6.5%, as opposed to its previous guidance of 6.5% to 8%.

The outlook factors in a fuel cost increase of €550 million despite the recent decline of the oil price.

"Yields in the European short-haul market, in particular in the Group's home markets Germany and Austria, are affected by sustained overcapacities caused by carriers willing to accept significant losses to expand their market share," it said.

"This is putting pressure on yields at the Network Airlines and Eurowings. Both will continue to vigorously defend their leading market positions while focusing on securing profitability at the same time."

The group said long-haul business continues to be strong, particular on transatlantic and Asian routes.

"Strength in long haul, however, is being offset by price pressures in Europe where demand has become increasingly price sensitive, resulting in lower yields," it said.

Lufthansa's announcement led to a fall in shares yesterday morning of just over 3% for easyJet and British Airways parent International Consolidated Airlines Group, 4.6% for Wizz Air and 4.2% for Ryanair Holdings.

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