Lufthansa says joint venture with Turkish Airlines likely partner for low-cost long-haul

BERLIN-Reuters

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Lufthansa said talks to make SunExpress, its joint venture with Turkish Airlines, a partner in its new low-cost long-haul Wings concept were progressing well.

“The negotiations are progressing. If we do choose to do it with a partner then SunExpress is the likely partner,” Lufthansa Chief Executive Carsten Spohr told analysts and journalists after the group reported third quarter results.

Lufthansa will in December present a concept for a new low-cost brand under the ‘Wings’ umbrella for long-haul flights to its supervisory board for approval. The brand could start operations from Germany  with Cologne and Munich among airports being considered at the end of 2015 using seven A330 planes.

Meanwhile, Lufthansa has lowered its profit guidance for 2015 for the second time this year, due to a stuttering global economy and falling ticket prices, and said any further strikes could also impact the target for this year.

The airline, Europe’s largest by revenue, said it now expected its 2015 operating profit to be “significantly above” the 1 billion euros ($1.3 billion) seen for 2014, compared with a previous forecast for 2 billion.

Even before this warning, analysts had on average predicted operating profit of 1.5 billion euros for Lufthansa in 2015, according to a Reuters poll.

The airline, which is expanding low-cost operations and reducing costs to better compete with budget carriers and Gulf rivals, is also being affected by inflation in pension costs, swings in oil prices and foreign exchange rates, it said.

Weak European currencies mean airlines in the region are seeing less immediate benefit from falling fuel prices than their rivals in the United States.

Analysts have also said falling oil prices can indicate a period of weak yields, a measure of pricing for airlines, because a drop in the price of crude is often linked to a weakening of the global economy.

Analyst Robin Byde at brokerage Cantor Fitzgerald said given that airlines should benefit from reduced fuel costs next year, the lowered guidance is likely related to airlines adding more seats on long-haul routes and resulting pressure on yields.

Airlines generally have to lower prices to fill more seats.

Chief Financial Officer Simone Menne said yields would be stable rather than rise in 2015 and Lufthansa would react by reducing capacity plans. “We still have a yield pressure, not in Europe, but in other regions, especially North America,” she told journalists.

Yields fell a currency-adjusted 3.9 percent in the third quarter, after a drop of 2.6 percent in the previous quarter.