Lufthansa sees earnings slump in third quarter as costs rise

By Ilona Wissenbach, Joanna Plucinska and Rachel More

BERLIN/LONDON (Reuters) -Lufthansa warned of a fall in third-quarter earnings on Wednesday as the German airlines group grapples with higher wage costs and a squeeze on ticket prices, pointing to tougher market conditions across the aviation sector.

Airfares around Europe and Asia have started to plateau or fall amid signs the post-COVID travel boom may be starting to lose steam just as many airlines are ramping up flights.

Ryanair, Europe's biggest airline by passenger numbers, and Air France-KLM reported plunging profits earlier this month, although easyJet fared better.

Lufthansa said it expected third-quarter yields - a measure of flight profitability - to fall by a single-digit percentage from 2023 levels, while unit costs are seen rising by a similar amount.

Chief Executive Carsten Spohr said demand had remained strong, but that "market-wide capacity growth intensified price pressure for the passenger airlines, causing yields to fall."

Delays in aircraft deliveries are also disrupting fleet management and driving up repair costs for older planes, while wages have risen for German staff after strikes that cost the group 100 million euros ($108 million) in the second quarter.

Overall, Lufthansa forecast third-quarter adjusted earnings before interest and taxes (EBIT) below the previous year's 1.5 billion euros, due to challenges at its main-brand passenger business Lufthansa Airlines.

Spohr later said on a call that the company would slow capacity growth later in the year, adding that competition with Chinese airlines in particular was hitting the German group as yields fall for Lufthansa on routes on which they compete.

"For us, yields are more important than growth," Spohr told an analyst call, adding that the company was still aiming to achieve an 8% EBIT margin, albeit one or two years later than previously expected.

Shares in Lufthansa, which had already cut its full-year profit target earlier this month for the second time this year, were little changed at 1019 GMT. The stock has fallen around 23% over the last six months.

For the second quarter, Lufthansa reported a group net result of 469 million euros, down almost half on the same period last year.

Spohr said a restructuring programme could help to turn around the group's fortunes, with a focus on modernisation.

($1=0.9239 euros)

(Reporting by Rachel More, Joanna Plucinska, Ilona Wissenbach; Editing by Clarence Fernandez and Mark Potter)