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European airlines give bleak 2009 outlook

FRANKFURT (Reuters) - Germany’s Lufthansa warned of a considerable fall in 2009 operating profit and Ireland’s Aer Lingus gave up any chance of a pretax profit as airlines brace for a sharp slowdown in air travel.

Lufthansa, which vies with Air France-KLM to be Europe’s biggest airline, posted a 64 percent drop in 2008 net profit to 599 million euros ($764 million), undershooting analyst estimates. It warned 2009 operating profit would fall.

Airlines are struggling to remain profitable as businesses and consumers trim travel budgets amid the global economic crisis. The world’s airlines lost up to $8 billion in 2008, the International Air Transport Association said last week.

“Given that statements on the duration and extent of the worldwide recession are becoming more and more negative, we continue to see above-average operating risks in 2009,” said DZ Bank analyst Robert Czerwensky.

In Asia, Hong Kong’s Cathay Pacific posted a record $1 billion second-half net loss on Wednesday and warned the year ahead will be “extremely challenging.”

Lufthansa said hopes for improved earnings in 2010 hinged on whether the market started recovering at the end of the third quarter of this year.

Irish carrier Aer Lingus, which fended off a hostile bid by Ryanair, swung to an after-tax loss of 107.8 million euros in 2008 from a year-earlier profit.

It said it no longer expected to post a pretax profit in 2009 and saw fare prices slumping at least 10 percent. Chief Financial Officer Sean Coyle told Reuters that bookings declined sharply in February.

NO ACQUISITIONS

The weak market has also brought M&A activity in the industry to a halt after frenzied consolidation in 2008. Lufthansa Chief Financial Officer Stephan Gemkow said the company had no plans now for further transactions.

German carrier Air Berlin said it was looking into selling its LTU charter airline due to the deteriorating economic environment, but said there were no parties interested in buying the unit at this stage.

In the face of falling demand for air travel, airlines are focusing on cost control by flying fewer routes, cutting labor costs and grounding planes they do not need.

Lufthansa said it would cut capacity by 0.2 percent in 2009, after a 4.9 percent increase in 2008. Delta, the world’s largest carrier, said on Tuesday it would cut international capacity by an extra 10 percent.

Austrian Airlines, the loss-making carrier being taken over by Lufthansa, on Wednesday struck a deal with unions to cut working hours for 2,600 ground staff.

Carriers including Aer Lingus have also resorted to selling tickets at lower prices, cutting revenue. NCB Securities analyst Neil Glynn said he saw the Irish carrier’s 2009 revenues down by 10 percent, with a 12 percent decline in average fares.

Signs so far this year are not encouraging, with Lufthansa’s February passenger traffic down 9.8 percent and a load factor -- the proportion of available seats actually sold -- off by 3.3 percentage points.

“Recent traffic stats for January and February have proved that the negative momentum is ongoing,” WestLB said in a note.

Frankfurt airport operator Fraport said February passenger traffic at the Lufthansa hub fell 4.8 percent in February, with a 25.6 percent drop in cargo volumes.

Lufthansa shares were up 2.6 percent at 8.405 euros by 1300 GMT, while Aer Lingus plunged 24 percent to 0.60 euros.

Additional reporting by Andras Gergely, Sui-Lee Wee, Tim Hepher, Boris Groendahl, Eva Kuehnen; Editing by Jason Neely

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