Three London-listed airlines, Ryanair Holdings PLC (LON:RYA), easyJet PLC (LON:EZJ) and BA owner International Consolidated Airlines Group (LON:IAG), all saw their share prices descend on Monday after rival airline Lufthansa issued a profit warning.
The German carrier said that market-wide overcapacities and the aggressive growth of low-cost competitors were putting pressure on its operations in the European short-haul market which it was unable to fully offset despite a strong performance in its long-haul business across Asia and the Atlantic.
As a result, the company said its adjusted EBIT margin for 2019 was now expected to be between 5.5% and 6.5%, lower than previous expectations of between 6.5% and 8%, while adjusted earnings were now forecast to between €2bn-€2.4bn.
In a note, analysts at Morgan Stanley said the revised figures were now around 18% below consensus forecasts and would represent a 22% fall on the prior year. The bank also said the figure implied year-on-year revenue growth for the airline of 1-2%, also below prior targets.
Morgan Stanley currently has Lufthansa at an ‘overweight’ rating with a price target of €24.
The gloomy forecast spooked investors in London, with shares in Ryanair down 6.1% at €10 in lunchtime trading while easyJet sank 5.2% to 881p and IAG fell 2.5% to 449p.
Lufthansa is the latest airline to have suffered from the woes afflicting the sector as a cocktail of factors including fierce price competition, higher fuel costs, Brexit uncertainty and the grounding of Boeing’s 737 MAX aircraft have weighed heavily on the industry’s bottom line.
Ryanair itself issued a profit warning in May predicting flat profits for 2020 as a result of lower fares and a higher fuel bill.
easyJet also issued a cautious outlook for 2019 in April, saying worries about Brexit had hit customer demand, leading to softer ticket prices in the UK and across Europe.
Russ Mould, investment director at AJ Bell, said that while the issues afflicting Lufthansa were not new, the fact that the airline was still pointing them out suggested life was getting “even tougher” for the airlines.
Meanwhile, Neil Wilson, chief market analyst at Markets.com, said that with none of the airlines seemingly prepared to reduce capacity, the “wave of consolidation” in the European short-haul market wasn’t over.
--Adds Morgan Stanley note details and updates share prices--