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Lufthansa reports 9% drop in third-quarter profit due to problems at its core brand.

Lufthansa registra una caída del 9% en sus ganancias del tercer trimestre debido a problemas en su marca principal.

Third-quarter operating profit of $1.41 billion was in line with analysts’ forecasts, but was down 9% from the same period last year.

German airline Lufthansa on Tuesday reported a decline in third-quarter operating profit from a year earlier, amid challenges facing its core brand from lower yields, competition from international airlines and rising costs.

Operating profit for the period was 1.3 billion euros ($1.41 billion), largely in line with analysts’ forecasts, but down 9% from the same quarter last year.

Lufthansa CEO Carsten Spohr said in a statement that delays in aircraft deliveries, punctuality problems at hubs in Germany and certain regulatory disadvantages are impacting its core brand.

The third quarter, which covers the peak summer travel season in the northern hemisphere, is typically the most profitable for European airlines. However, rising costs, uncertainty over the Middle East crisis and delays in the arrival of new aircraft continue to affect profits.

Following the announcement of the results, Lufthansa shares fell by 2.5%, as did those of other airlines such as Wizz Air, IAG (owner of Iberia and British Airways) and easyJet.

Lufthansa’s passenger airlines, which include both the main brand and Austrian Airlines, Swiss International and Eurowings, posted an operating profit of 1.2 billion euros in the third quarter, down from 1.4 billion in the same period in 2023.

The decline in profit was largely due to a 234 million euro decline in the performance of its main brand, Lufthansa Airlines, the company said in a statement. In addition, the slow recovery of corporate travel has also had an impact, analysts said.

“They are likely to face the most challenging industry environment among European airlines, as before the pandemic they were the most dependent on revenue from corporate customers,” Bernstein analyst Alex Irving told Reuters.

Lufthansa has repeatedly expressed its difficulty in competing with Chinese airlines that can still use Russian airspace, leading to the suspension of its route between Frankfurt and Beijing.

In the third quarter, yields, which serve as a proxy for airfares, fell 14% in the Asia-Pacific region, the company said.

“Lufthansa’s decision to remove one of its oldest routes, Frankfurt-Beijing, from the flight schedule reflects the impact of changes in the balance of international competition,” a Lufthansa spokesman said in an email to Reuters.

“European airlines face a significant competitive disadvantage compared to China, as well as airlines in the Persian Gulf region and the Bosphorus area.”

Renewal plan

The group has implemented a restructuring plan for its core brand in a bid to bounce back after a challenging year in terms of profits.

Lufthansa has already issued two profit warnings this year, due to high costs resulting from strikes. According to the company, the cost-cutting measures will have a gross impact of 1.5 billion euros on its operating profit until 2026.

The company confirmed its annual forecasts, putting the group’s operating profit in a range between 1.4 and 1.8 billion euros and maintaining its medium-term target of an operating profit margin of 8%, although analysts doubt this will be achieved by 2026.

For the 2024 financial year, the profit margin is expected to be 4.3%, in line with average analyst estimates.

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