Lufthansa Defies Bleak Market, Ups 2008 Target

February 3, 2009

Lufthansa raised its forecast for full-year 2008 operating profit, becoming the second European airline in as many days to say it could defy the tough market environment.

The company's shares reversed earlier losses and closed up 7.8 percent at 10.125 euros, while the German blue-chip DAX index was up 2.4 percent.

The German carrier said on Tuesday it would post a full-year operating profit of around EUR1.3 billion euros (USD$1.7 billion), compared with its previous expectation of EUR1.1 billion, thanks to a stronger-than-expected fourth quarter.

Irish low-cost carrier Ryanair on Monday raised its own full-year outlook to a profit from an earlier expected loss due to lower fuel costs, and forecast a further substantial profit next year as travelers trade down in the recession.

The latter trend boosts no-frills airlines like Ryanair but hurts others such as Scandinavia's SAS, long viewed as a possible takeover target, which launched a rights issue and another cost-cutting program.

Airlines and airport operators have been hit by fallout from the financial crisis as companies spend less on business travel and consumers tighten their purse strings.

In addition, many carriers bet on rising fuel prices in 2008 and were taken by surprise when crude oil fell from an all-time high of over USD$145 per barrel to around USD$40. Airlines commonly hedge their exposure to fuel months in advance.


Lufthansa, which had to cancel dozens of flights last month due to cabin crew strikes, said lower fuel prices and favorable valuation effects were offsetting a slowdown in demand.

It is due to report 2008 results on March 11.

"Lufthansa was able to beat market assumptions and outperformed main competitors with already reduced profit targets like Air France-KLM and British Airways," said DZ Bank analyst Robert Czerwensky in a note.

Air France-KLM and British Airways, Lufthansa's main rivals in Europe, have both issued profit warnings in the past two weeks.

And despite its raised outlook, Lufthansa said its outlook was more risky than usual as the market suffers low overall demand.

German airlines' association BDF earlier said it cut its full-year 2009 outlook for passenger numbers to a drop of 5 percent from 3 percent following a sharp slump in January.

Airport operator Fraport has estimated its main Frankfurt airport, Germany's biggest, served around 6 percent fewer passengers in January than in the year-earlier period.

Nonetheless, the German market is still attracting investors and NetJets, a plane-sharing company owned by investor Warren Buffet's Berkshire Hathaway, agreed to buy German airport Frankfurt Egelsbach for an undisclosed sum.

The airport, located about 17 kilometers south of Germany's financial capital, caters to small jets, helicopters and twin-engine planes.

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