Lufthansa results suffering from overcapacity and fuel cost risk

Deutsche Lufthansa AG shares dropped as Europe’s largest airline reported a first-quarter loss that was 80 percent higher than the average analyst estimate.

The stock fell as much as 5 percent Tuesday after Lufthansa posted an adjusted loss before interest and tax of 336 million euros ($380 million). The figure was worse than any of 12 earnings estimates and came five weeks after the German company issued a detailed guidance update.

Lufthansa blamed the profit slump on rising fuel costs, an intense fare war and tough comparisons with year-earlier figures, which were boosted by an early Easter and benign pricing environment after the collapse of local rival Air Berlin. Bernstein analyst Daniel Roeska said none of those factors should have come as a surprise and that “the magnitude of the miss” was a shock.

Lufthansa’s losses amount to $ 380 million

“This is a much bleaker picture than consensus expectations,” he said in an investor note. “It is unclear to us what the material changes over the past 5 weeks could have been to prevent a clearer guidance by the company.”

Lufthansa shares fell the most since the March 14 update, when the carrier cut its growth plans in response to the pressure on fares and fuel costs. The stock was trading 1.4 percent lower as of 10:13 a.m. in Frankfurt.

Uncertain if losses occurred were projected or not by Lufthansa

Bernstein said a 202 million-euro headwind in fuel costs was only slightly worse than estimated. It’s therefore not clear if the quarterly loss was already expected by the carrier or if its underlying business has suffered in recent weeks due to fare competition, Roeska said.

Unit revenue, which reflects fares, should gain this quarter amid favourable booking levels and a slowdown in market-wide capacity growth, Lufthansa said. Analysts had anticipated a loss of 186 million euros, the median figure in a range of estimates spanning losses of 41 million euros to 325 million euros, he said, citing data gathered by the company.

Lufthansa’s stock up with 11% this year

The European airline industry is coming off a tough year, with bad weather, air-traffic-control strikes and global trade conflicts among factors that have weighed on profit. Irish low-cost giant Ryanair Holdings Plc has warned that fares will remain depressed.

Lufthansa said it still expects to report an adjusted EBIT margin of between 6.5 percent and 8 percent for 2019. The company will publish detailed first-quarter results on April 30.

The stock has gained 11 percent so far this year, valuing the airline at 10.4 billion euros.