Lufthansa flies high on collapse of AirBerlin

Lufthansa cashed in on the collapse of national rival AirBerlin last year, but warned that 2018 will be a whole lot tougher as foreign competitors target the German market.

Operating profit that jumped 70 percent in 2017 is set to slide, snapping a three-year run of record annual earnings, Lufthansa said in a statement Thursday. The company will also trim its capacity plans as a splurge on seating among European carriers risks flooding the market.

Lufthansa is adopting a more cautious approach after EasyJet and Ryanair used the failure of AirBerlin to jump-start their operations in Germany, where low-cost specialists have lacked penetration.

AirBerlin’s collapse was largely responsible for Lufthansa’s fastest revenue growth in seven years in 2017 as a lack of flights bolstered fares and it secured grounded jets to add flights. It also bought the whole of Brussels Airlines.

“Competition is becoming more intense,” Lufthansa said in its annual report. Though a number of carriers have folded, there has been “an even greater number of entries,” and the company’s business will therefore experience “significant fluctuations” in the year ahead.

Fare trend

Lufthansa plans to increase capacity 9.5 percent in 2017, less than the 12 percent previously planned, with much of the gain stemming for a full year of operations with ex-AirBerlin planes and ownership of Brussels Air.

Air France-KLM Group, Europe’s biggest airline, plans to boost seating 4 percent and British Airways owner IAG SA is planning a 6.7 percent jump.

Unit revenues, a measure of fares, will rise slightly in the first six months, but visibility beyond that point is low, and there may be little change for the full year, Chief Financial officer Ulrik Svensson said in the release.

Lufthansa posted an operating profit of €2.97 billion (US$3.7 billion) in 2017. That was double Air France-KLM’s €1.49 billion but slightly below the €3.05 billion reported by IAG. This year’s earnings will also be hit by a fuel bill set to be about €700 million higher, the carrier said.