The shares of Deutsche Lufthansa AG decreased the most since the 9/11 terror attacks after the company reduced its profit forecasts for this year by as much as 33%. The profit warning is due to the ongoing employees strikes and amid ever increasing competition from state-owned Gulf carriers. As the company itself explained, the Gulf airlines have become a “major concern” along with currency changes and workers strikes.
As reported by the Wall Street Journal, Ms. Simone Menne, who is the Chief Financial Officer of Deutsche Lufthansa AG said: “The revenue risks mentioned when we presented the quarterly figures in early May have unfortunately materialized. Strong capacity growth by state-owned Gulf carriers was a major concern.”
According to Lufthansa’s statement, its operating profit is expected to reach about 1 billion euros (1.35 billion dollars) this year. The company projected its 2015 operating profit to amount to 2 billion euros. Both figures fall short of the company’s initial projections of 1.3 to 1.5 billion euros and respectively 2.65 billion euros.
The company warned about increasing risks that were threatening its earnings, when it posted the results for the first quarter of the current financial year. Excess capacity on the companys flights in Europe and the U.S. was one of the main problems the company has been recently forced to deal with, along with increasing rivalry from Gulf airlines.
The ex-Chief Executive Officer of Deutsche Lufthansa AG – Mr. Christoph Franz, who left the company in April 2014, made a warning about the fierce competition of Gulf airlines to European companies, which according to him the company will face this year.
The situation about the company is even worse thanks to the repeated and long-running strikes by union workers on the territory of Germany, in response to the company proceeding with its three-year cost reducing plan. According to the plan, which was announced two years ago 3 500 jobs would have to be eliminated. The airline carrier also explained that it plans to unveil further structural changes in July.
As reported by Bloomberg, the aviation specialist and director of JLS Consulting Ltd Mr. John Strickland commented on the situation of Deutsche Lufthansa AG: “It’s a tough competitive landscape, but these are not new things and its something Lufthansa has no choice but to handle. This is a moment in history for the Gulf carriers and it’s not going to go away.”
Deutsche Lufthansa AG was losing 14.26%% to trade at 17.07 euros per share by 11:39 GMT, trimming the one year change to +3.67%. According to the information published on the Financial Times, the 27 analysts offering 12 month price targets for Deutsche Lufthansa AG have a median target of 21.50, with a high estimate of 26.50 and a low estimate of 13.50. The median estimate represents a 7.99% increase from the last price of 19.91.
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