Air France, Lufthansa Drop on Results; Singapore Also Misses

Air France-KLM Group and Deutsche Lufthansa AG (LHA) tumbled as Europe’s top airlines said they’ll rein in capacity after earnings missed estimates. Singapore Airlines Ltd. (SIA) will also slow growth following numbers that came up short.

Air France fell 8.1 percent on a second-quarter operating loss of 145 million-euro ($208 million) and Lufthansa slid 2.8 percent when profit of 230 million euros failed to meet the 325 million-euro estimate of analysts. Singapore Air, reporting at the Asian close, missed targets as net income fell 82 percent.

Air France-KLM, expected to report operating profit of 43.4 million euros, will almost halve the pace of seat increases this winter to cope with high fuel prices and the legacies of unrest in the Middle East and Japan’s nuclear crisis. While Lufthansa will also revise capacity plans, it still aims to lift annual earnings, whereas Air France’s target remains to be profitable.

“The impact of some of these events is even bigger than previously reported,” said Jonathan Wober, an analyst at Societe Generale in London. “There is also some vulnerability to the macro-economic environment and the euro situation. But even if both results came in lower than expected, there’s a big difference between the two. Air France is more disappointing.”

Demand ‘Flat’

Singapore Airlines, the world’s second-largest carrier by market value, said today that bookings for the next few months are almost flat, with traffic hurt by the Japanese disruption and uncertainty over the world economy posing “significant challenges” in the key markets of Europe and the U.S.

Global passenger growth slowed to 4.4 percent in June from 6.8 percent in May, the International Air Transport Association said today. IATA, which predicts a 78 percent drop in industry net income this year to $4 billion, a 0.7 percent margin, blamed the slowdown on fuel costs, a sluggish economy and higher taxes.

Air France, Europe’s biggest airline, closed 76 cents lower at 8.62 euros in Paris, where the Franco-Dutch company is based, for the steepest drop in five months. The stock has declined 37 percent this year, valuing the business at 2.59 billion euros.

Cologne-based Lufthansa ended the day 41 cents lower at 14.06 euros in Frankfurt and has slipped 14 percent this year, giving a market value of 6.44 billion euros. Both companies published results after markets closed yesterday.

Crisis-Costs

The European carriers said the aftermath of the Japanese earthquake and tsunami and political unrest in the Middle East and North Africa are still weighing on traffic. The crises cost about 100 million euros at Air France-KLM (AF) in the second quarter and 117 million euros in the first half at Lufthansa, which said the full-year toll could reach 200 million euros.

The German company will examine winter seating plans in response to the “new demand climate” and aims to accelerate restructuring of Austrian Airlines and British Midland. The main-brand airline will trim winter capacity growth to 6 percent from a previous plan of 12 percent by using smaller aircraft, deferring planned routes and shutting the Lufthansa Italia unit.

Lufthansa maintained its target of increasing annual sales and operating profit beyond last year’s tallies of 27.3 billion euros and 876 million euros respectively. Quarterly traffic rose 11 percent, Europe’s No. 2 carrier said in a further statement today, as disruption caused by volcanic ash from Iceland eased, with revenue climbing by the same degree to 7.6 billion euros.

The company, which has its main hub in Frankfurt, is also wrapping up a program to cut costs by 1 billion euros from 2008.

Better-Placed

Quarterly fuel expenses climbed 16 percent to 1.67 billion euros at Air France-KLM and 27 percent to S$1.44 billion ($1.2 billion) at Singapore Airlines.

While Lufthansa’s three-month fuel bill rose 22 percent to 1.7 billion euros, the full-year estimate -- 6.8 billion euros originally -- was cut again to 6.4 billion euros, and the company says hedging positions benefit it when oil is priced above $94 a barrel. Brent crude for September settlement was at about $118 today on London’s ICE Futures Europe exchange.

“Lufthansa is in a better position,” said Stephen Furlong, an analyst at Davy Stockbrokers in Dublin with an “outperform” rating on the carrier. “The oil price and the Middle East and Japan crises are taking some of shine off the overall numbers, but it’s still overall very solid.”

Seats Slashed

Air France-KLM’s statement reiterated its forecast of a positive operating result for the full year after passenger traffic rose 9.4 percent in the quarter, spurred by gains of 15 percent in Europe and 13 percent on routes to the Americas, and revenue advanced 8.7 percent to 6.22 billion euros. Ivory Coast traffic has also begun to recover after a civil war there, Chief Executive Officer Pierre-Henri Gourgeon said on an analyst call.

Still, the Eurozone crisis and setbacks in Japan and the Mideast mean markets are “uncertain,” the company said, adding that it will reduce long-haul winter capacity growth from 5.1 percent to 2.7 percent, including cuts at KLM unit Martinair. Lufthansa said all of its divisions are “revising their plans.”

Singapore Airlines said management will monitor business trends closely “and respond appropriately.” Capacity will now increase 5 percent in the fiscal year that began April 1, a reduction of 1 percentage point, it said in a statement.

Ryanair Holdings Plc (RYA), Europe’s biggest discount airline, will cut year-to-year capacity for the first time in its history for the low season starting in October as fuel costs threaten to render dozens of routes unprofitable, it said May 23.

Higher Fares

“You could say at first glance that this is negative, but I’ve always felt that the planned capacity increases were over- ambitious,” said Per Ola Hellgren, an analyst at Landesbank Baden-Wuerttemberg in Mainz, Germany. Slower growth in seating may also help airlines boost average fares, he added.

Air France-KLM reported a net loss of 197 million euros for the quarter versus a year-earlier profit of 736 million euros, when earnings were boosted by the sale of a stake in the Amadeus booking system. The adjusted loss narrowed to 212 million euros from 252 million euros.

Lufthansa’s three-month net income increased 55 percent to 301 million euros and demand and sales are likely to develop positively as the year progresses, it said, helped by a recovery in Japan. The German company had a year-earlier operating profit of 159 million euros and Air France a loss of 132 million euros.

Costs Gap

Singapore Airlines said quarterly net income fell to S$44.7 million, missing the S$127 million analyst consensus, as a 3 percent gain in revenue to S$3.58 billion failed to keep pace with an 11 percent jump in spending. The main airline unit swung to a S$36 million operating loss from a S$136 million profit.

The stock declined 0.4 percent to S$14.71 ahead of the earnings announcement and has fallen 3.9 percent this year. Singapore Air has a market value of S$17.6 billion, ranking it second in the airline industry only to Air China Ltd.

International Consolidated Airlines Group SA, Europe’s third-biggest airline by traffic, formed from the merger of British Airways and Spain’s Iberia, reports earnings tomorrow. The stock was trading 1.4 percent lower today, valuing the London-based company at 4.29 billion pounds ($7 billion).

To contact the reporters on this story: Andrea Rothman in Paris at aerothman@bloomberg.net; Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net

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