* Q2 operating profit 359 mln euros - market forecast 416
* Q2 sales 7.7 bln euros vs market forecast of 7.68 bln
* Says pricing remains weak, Q2 fare yields down 2.6 pct
* Confirms lowered outlook for 2014, 2015
* Shares drop 5.6 percent to 11-month low
(Adds more comments on Asia, Venezuela, outlook, updates
By Victoria Bryan
BERLIN, July 31 Lufthansa, Europe's
largest airline by revenue, reported a lower than expected
second-quarter profit on Thursday as ticket prices fell on North
American, Asian and European routes and it lost business due to
a strike by pilots.
"We are not happy with the second quarter ... We have a lot
of catching up to do in the summer," Chief Financial Officer
Simone Menne said on a results news conference call.
Menne said pressure on pricing would ease in the fourth
quarter as the airline becomes more restrained on the number of
seats it offers.
Lufthansa and rival Air France-KLM have been
struggling to cope with increased competition from low-cost
rivals in Europe and Gulf carriers on long-haul routes, leading
both to warn on profits over the last eight weeks.
In response, the two have announced plans for more low-cost
operations, to try to emulate the success of companies such as
Ryanair, easyJet and Spain's Vueling, owned by
British Airways parent IAG.
"We want to target a price segment and customers that we
didn't previously," Menne said, adding that talks were
continuing on new low-cost long-haul operations, whether on its
own or based on SunExpress, its joint venture with Turkish
Lufthansa's second-quarter operating profit was 359 million
euros ($480.9 million), far below the average forecast of 416
million given in a Reuters poll of analysts.
Lufthansa's shares were down 5 percent at 13.62 euros at
1100 GMT, when Air France-KLM was down 2 percent and IAG was
down 1.4 percent.
"The results ... once again show how vulnerable the airline
is to the pressure and increased competition from low-cost
carriers on its short- and medium- haul routes, while on
international destinations the German player has been squeezed
by Gulf operators," said Nadejda Popova, Senior Travel Analyst
After hitting 20.27 euros in April, their highest level
since late 2007, Lufthansa shares have tumbled since the profit
warning in June. They trade at 7.3 times expected earnings,
compared with 10.5 times for Air France, 8.6 times for IAG and
13.9 for Ryanair, according to Thomson Reuters data.
In the first half, strikes wiped 60 million euros off
profits in its core passenger airlines business. Yields - the
average revenue per passenger carried and kilometre flown - were
down 2.6 percent adjusted for currency effects in the second
quarter, extending falls of 1 percent in each of the previous
Lufthansa had previously said pricing was tough on North
American and European routes but said on Thursday yields on its
Asian routes came under pressure too in the second quarter as it
introduced new routes.
A further 61 million euros was struck off from the
first-half results due to write-offs associated with the
devaluation of the bolivar in Venezuela, where Lufthansa has a
"low three-digit-million-euro amount" in ticket sales trapped in
the country due to currency controls.
The German carrier also took a provision for its Austrian
Airlines unit after the European Court of Justice in June
advised judges to rule that old Austrian Airlines collective
wage agreements, which Lufthansa wants to cancel, are valid
until a new one is agreed.
Lufthansa declined to specify the amount set aside but DZ
Bank analyst Dirk Schlamp said he estimated the provisions in
the double-digit million euro range.
Despite that, Lufthansa maintained a forecast for a
full-year operating profit of around 1 billion euros and 2015
profit of 2 billion.
Lufthansa confirmed it will only increase the number of
seats it offers this winter by 2 percent instead of the 4
percent previously planned. Capacity on North Atlantic routes
will be affected but not by much, Menne said.
The airline also said it expects markets to remain weak in
the second half, though the capacity cuts should ease the
pressure compared with the first half.
However, Ryanair said earlier this week that it would be
raising winter capacity by 8 percent, indicating no let-up on
pricing for European carriers.
Ryanair said increasing capacity would put pressure on
fares, and that it expected yields to fall by between 6 and 8
percent in the second half of its financial year, giving a 2
percent rise for the year as a whole.
Menne said that she was untroubled by the Ryanair plans as
there wasn't much overlap in their routes at present and that
Lufthansa would be able to better compete in the medium-term as
it expands its low-cost unit Eurowings to markets outside of
(Additional reporting by Peter Maushagen; Editing by John
Stonestreet and Greg Mahlich)