Lufthansa plays down further M&A after first quarter profit since 2008

BERLIN (Reuters) - Germany's Lufthansa LHAG.DE played down prospects of acquiring more airlines on Thursday and said it would work harder on costs after it swung to a first-quarter profit, its first since 2008 in what is traditionally a weak quarter for airlines.

The tail of a Lufthansa airplane is seen outside a Lufthansa Technik maintenance hangar at Malta International Airport outside Valletta, Malta, November 23, 2016. REUTERS/Darrin Zammit Lupi

With Alitalia reviewing its future after workers rejected a rescue plan and Air Berlin AB1.DE expected to report higher losses for 2016 on Friday, speculation has swirled that Lufthansa could be in the frame to take on the two carriers.

Lufthansa has been driving consolidation among European airlines recently, taking over Brussels Airlines and leasing 38 planes and crew from struggling Air Berlin, to grow its budget division Eurowings.

But Chief Financial Officer Ulrik Svensson said on Thursday that Lufthansa was not looking to take over Alitalia and repeated that debt, anti-trust concerns and cost levels remained obstacles to further Air Berlin consolidation.

Budget rival Norwegian Air Shuttle NWC.OL also said on Thursday it was not interested in any Alitalia assets.

Despite a rebound in travel demand from North America and Asia, and a more positive view on prices this year, Lufthansa held off upgrading its 2017 profit target, saying it did not have enough of an overview yet of summer bookings.

Yields, a measure of pricing, dropped 2.4 percent in the first quarter excluding currency effects, compared with a decline of 4.1 percent for the full year 2016.

Svensson cautioned that Lufthansa would chase volumes in the summer, which would weigh on yields.

Lufthansa has been trying to bring down costs to better compete with rivals and a long-sought breakthrough with its pilots on pay and pensions in March, which remains to be finalised, has helped to drive its share price.

But unit costs at Lufthansa’s airline business, stripping out a higher fuel bill, rose an unexpected 1.4 percent in the first quarter, leading to wider losses at its network airlines division.

Svensson said the cost increase in the first quarter stemmed from aircraft maintenance, especially at Austrian Airlines, and higher airport and catering fees due to rising passenger numbers and fuller planes.

“We are clearly disappointed on the (cost) development,” he told analysts and journalists in a conference call.

He said it would now be more difficult for Lufthansa to reach a target to reduce costs by 2.5 percent this year, adding delays to deliveries of new, more efficient planes, could also drag on costs this year.

Lufthansa shares, which have gained 37 percent so far this year, were down 4.2 percent at 1127 GMT, among the biggest fallers on the Dax .GDAXI.

It reported adjusted earnings before interest and tax of 25 million euros (20.91 million pounds), against a loss of 53 million a year ago and compared with expectations for a loss of 26.6 million in a Reuters poll.

Reporting by Victoria Bryan; Editing by Maria Sheahan and Adrian Croft