October 25, 2017 / 5:34 AM / 10 months ago

Lufthansa sees few clouds ahead after a good summer

BERLIN (Reuters) - Lufthansa (LHAG.DE) gave an upbeat assessment on trading for the rest of the year on Wednesday, after it benefited from strong summer demand and the demise of rivals.

FILE PHOTO - Planes of German air carrier Lufthansa AG are seen on the tarmac at Fraport airport in Frankfurt, Germany, June 7, 2016. REUTERS/Kai Pfaffenbach/File Photo

While this summer has seen Air Berlin AB1.DE and British carrier Monarch collapse due to tough competition, Europe’s major carriers have seen fuller planes and improving price trends.

Lufthansa said on Wednesday it was having to use bigger long-haul aircraft on some short-haul routes as a result of the additional demand caused by the collapse of Air Berlin, which will carry out its final flight on Friday.

“Altogether, we are expecting a very strong year. Our view on the development in the fourth quarter has improved,” Chief Financial Officer Ulrik Svensson said after the group reported a 32 percent rise in underlying third-quarter earnings before interest and tax on Wednesday.

The group now expects unit revenue, the all-important measure of how much income is generated per unit of capacity, to rise slightly in the fourth quarter after a 4.5 percent increase in the third quarter. It previously predicted a drop in unit revenues for the second half.

Lufthansa's share price has soared this year, more than doubling to highs last seen in 2001, and was up 2.9 percent on Wednesday at 26.95 euros, the top gainer in the DAX index .GDAXI.

The German carrier also stuck to its profit target for the year, aiming to earn more than the 2016 total of 1.75 billion euros.

Analysts on average expect Lufthansa to report 2017 adjusted earnings before interest and tax (EBIT) of 2.6 billion euros, though several said that figure could rise following Wednesday’s results. Morgan Stanley predicted 10 percent upside to the consensus.

Along with the collapse of Air Berlin, Lufthansa is benefiting from U.S. and Asian tourists returning to Europe this year, a long-term deal with its pilots on pay that removes the threat of strikes, and a weakening in competition from Gulf carriers.

Its network airlines Lufthansa, Swiss and Austrian saw their combined adjusted EBIT margin rise 4.6 percentage points to 18 percent in the quarter.

Finnair (FIA1S.HE) reported better than expected profits on Wednesday, also helped by good demand on its Asian routes.

British Airways parent IAG (ICAG.L), due to give third-quarter results on Friday, also expects a rise in unit revenues in the second half of 2017. CEO Willie Walsh said earlier this month he saw no reason to change that view.

Despite the positive outlook, Lufthansa Chief Executive Carsten Spohr said Lufthansa would not rest on its laurels.

“We know there is more work needed to bring down complexity and costs further,” he said, adding that the proposed deal to take over large parts of Air Berlin would bring its own challenges over the next year as it takes on 81 planes from the former rival.

However, Svensson said Lufthansa was targeting a slight decline in unit costs in the fourth quarter and was aiming to reduce them by at least 1 percent a year in the future.

The Air Berlin deal, which Lufthansa expects will close in January if approved by the competition regulators, will add around 1.5 billion euros in revenues next year but entail project costs of about 50 million euros for items such as repainting planes and training staff.

($1 = 0.8499 euros)

Reporting by Victoria Bryan; Editing by David Holmes

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