Lufthansa Reins in Expansion as Crowded Skies Threaten Profit

  • Capacity growth plans cut for the second time in recent weeks
  • Reducing expansion will `help' with profitability, CEO says

Deutsche Lufthansa AG will rein in expansion plans this year as a glut of plane seats depresses ticket prices and travelers delay bookings amid fears of terror attacks.

Capacity growth this year will be below the previously targeted 6 percent, Chief Executive Officer Carsten Spohr said in an interview in Berlin on Wednesday. That marks the second reduction in projected expansion in recent weeks.

“There’s too much capacity in the market, and a better adjustment of capacity and demand will help us with our profitability,” Spohr said.

The cuts will come on short- and long-haul routes at Lufthansa’s namesake brand, while the Eurowings low-cost arm will continue its expansion, the executive said. The move, which is partially a response to an increasing proportion of shorter-term bookings, will also help ease a shortage of cabin crew, Spohr said.

Grounding Planes

While low oil prices have led to record profits at Lufthansa and other airlines and spurred expansion, summer capacity plans failed to take into account the impact of terror attacks in Paris, Brussels and Turkey. Lufthansa still plans to add more capacity that rivals Air France-KLM Group and British Airways-parent IAG SA, even after its yield, a measure reflecting average ticket prices, suffered the biggest drop in more than four years in the first quarter.

Lufthansa shares fell 1 percent to 12.55 euros at 4:31 p.m. in Frankfurt. The stock has slumped 14 percent this year, valuing the company at 5.8 billion euros ($6.6 billion).

As part of the adjustment, Lufthansa is considering grounding three Airbus Group SE A340 long-haul aircraft stationed in Frankfurt and Munich after the summer, while maintenance schedules could be used to reduce short-haul capacity, Spohr said. Lufthansa had already curtailed its capacity growth plans this month from an earlier target of 6.6 percent.

By comparison, Air France-KLM will boost passenger seating only about 0.5 percent this year, with a reduction of about 1 percent at its French arm and an increase of 3 percent to 4 percent at Dutch unit KLM. IAG said April 29 it was reining in 2016 capacity growth to 4.9 percent from the planned 5.2 percent, with British Airways reducing its exposure to Brazil and the Iberia unit scrapping routes to Nigeria, Ghana and Turkey.

The terror attacks this year have spooked Europe-bound tour groups from China, Japan and North America, while customers in Europe have switched to booking closer to their date of travel, reducing visibility and prepayments, the German airline’s CEO said.

Lufthansa this week said it will remove a flight attendant from some of its Airbus A330 and Boeing Co. 747-400 aircraft during the summer, after persistently high sick rates among employees stretched its staffing plans. The carrier is trying to hire 2,800 cabin staff this year for its expansion. The efforts have been hampered by low unemployment in Germany and competition from other airlines for qualified workers.

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