Lufthansa drops as fare pressure looms amid cost-cut battle

Lufthansa stock retreated from nine-year highs as the German airline looked poised for a difficult second half with pressure on fares set to intensify amid a struggle to rein in costs. Lufthansa shares fell as much as 4.3%, the steepest intraday drop since April 27, even after the carrier raised its 2017 operating profit forecast to gradually catch up with analyst estimates. While H1 earnings almost doubled on stronger traffic, investors focused on the airline’s lingering need to confront lower-cost rivals as it said ticket prices will decline. “We remain concerned that Lufthansa is not making sufficient progress in improving competitiveness in its core businesses,” Gerald Khoo, a London-based analyst at Liberum, said in a report to clients. Lufthansa’s last two monthly traffic reports showed fare growth was “positive” as a stronger worldwide economy helped passenger numbers rise. Those gains are coming to a halt, with the second-half trend for unit revenue, a measure of pricing per seat, set to be “negative,” the company said late Monday. The carrier, which has its main bases in Frankfurt and Munich, has capitalized on added demand by leasing extra aircraft from ailing rival Air Berlin Plc and acquiring full control of Brussels Airlines, which is combining with the Eurowings low-cost arm that Lufthansa is seeking to expand. H1 adjusted earnings before interest and taxes surged to E1.04b from E529m a year earlier, prompting Lufthansa to forecast profit will rise this year instead of an earlier prediction of a decline. Unit costs, or operating spending per seat excluding fuel and currency effects, fell 1.2% in the period and will continue declining in the second half, the company said, without specifying a number.<br/>