Lufthansa Shares Slide Despite Profit Surge

Shares (Berlin: DI6.BE - news) in Lufthansa have fallen despite the German airline group posting a sharp rise in annual profits – as it reined in profit expectations for the coming year.

Underlying earnings for 2015 grew 55% to €1.8bn (£1.4bn) thanks to lower fuel costs and tight control over excess seat capacity.

But Lufthansa forecast only slightly higher profits in 2016, warning of cut-price competition and falling average fares as it ramps up its Eurowings budget business.

Shares fell 4.5%.

Chief executive Carsten Spohr said 2015 had been an "emotionally very challenging year" after the deadly plane crash of a flight operated by subsidiary Germanwings in March.

Investigators believe pilot Andreas Lubitz deliberately crashed the plane in southern France – killing himself and 149 others.

The airline also endured strikes over its efforts to cut costs and move flights to Eurowings, which is superseding the Germanwings brand.

Mr Spohr said it was a "good year in economic terms" with revenues up 7% to €32.1bn (£25.4bn) and profits at its passenger airlines – which include Swiss International Airlines and Austrian Airlines – doubling.

However earnings from the group's cargo division fell 40%, dragged down by overcapacity and the impact of the strikes at the end of last year.

Lufthansa issued a cautious outlook for this year saying that earnings would only "slightly improve" but that this did not include the impact of possible further industrial action – as it struggles to reach agreement with staff on new pay and pension deals.

The group has benefited, like rivals Air France-KLM (LSE: 0LN7.L - news) and British Airways owner International Airlines Group, from low oil prices and strong traveller demand in 2015.

But low-cost rivals such as Ryanair and easyJet have also gained and are challenging Eurowings, adding more seats and putting pressure on ticket prices (Other OTC: UBGXF - news) .