July 17, 2019 / 9:29 AM / 4 months ago

Finnair shares slump as rising costs hit profits

FILE PHOTO: A Finnair aircraft prepares to take off from Manchester Airport in Manchester, Britain September 4, 2018. REUTERS/Phil Noble/File Photo

(Reuters) - Finnair (FIA1S.HE) reported a sharp fall in the second-quarter profit on Wednesday due to rising costs and warned that full-year operating profit would miss market forecasts, sending shares in the Finnish airline down 12%.

Finnair now forecasts 2019 operating profit margin in the range of 4.5-6% of sales, missing an average forecast by analysts of 6.3%, according to Refinitiv data.

Finnair’s second-quarter comparable operating profit fell to 47.2 million euros (£42.7 million) from 59.1 million a year earlier, missing analysts’ expectations, who on average saw profit at 63.5 million euros, according to Refinitiv.

The Finnish airline cited rising fuel costs and exceptional maintenance costs as the reasons hitting profits.

The market price of jet fuel was 8.9% lower in the second quarter than a year earlier, but due to hedging policy Finnair said its Q2 fuel bill was 25% higher, with capacity growth explaining only half of the increase.

Aircraft materials and overhaul costs increased 39% to 50.7 million euros due to fleet growth, price rises, the decline in the U.S.-based discount rate of maintenance reserves and exceptional maintenance events.

Shares in Finnair fell 12.5% to 6.93 euros, by midday trade in Helsinki.

The airline, which has focused on long-haul flights connecting Asia and Europe, said it expects the operating environment to remain volatile in the second half of the year.

“The slowdown in the economies of Finnair’s key markets and the continued uncertainties surrounding global trade, including the U.S.-China trade talks and Brexit, could impact the demand for air travel and for cargo,” it said.

Reporting by Tarmo Virki, editing by Louise Heavens

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