BERLIN (Reuters) - Lufthansa (LHAG.DE) outlined plans for 4 percent capacity growth in 2017, not including recent deals to expand budget brand Eurowings, as Europe’s airlines engage in a race for customers against a backdrop of rising fuel prices.
The German carrier said in an investor presentation on Friday that its network airlines - Lufthansa, Austrian and Swiss - would grow the number of seats on offer by 3 percent, while Eurowings would grow 19 percent.
Including recent deals to lease 38 planes and crew from Air Berlin plus take over Brussels Airlines, group growth would be a reported 12.5 percent, according to the slides.
UBS earlier downgraded Lufthansa shares to “sell” from “neutral”, saying it was concerned that yields - a measure of pricing - would remain negative in 2017, as European carriers continue to add seats despite likely being unable to pass on increased fuel costs to passengers.
Expanding Eurowings is Lufthansa’s response to the rise of low-cost carriers in Europe, notably Ryanair (RYA.I), which is set to usurp Lufthansa as Europe’s largest carrier by passenger numbers, after the Irish budget airline said it carried 117 million people last year, a 15 percent increase on 2015.
Up until the end of November the Lufthansa group had carried almost 102 million passengers and typically carries 8-9 million in the last month of the year, meaning it is unlikely to catch Ryanair when it reports annual passenger numbers on Tuesday.
Showing a wish to take some capacity out of the market as well, Lufthansa said that of the 33 A320 planes coming to Eurowings from the Air Berlin lease deal, up to 20 would be used to replace existing Eurowings planes that currently run at higher costs.
Lufthansa estimated its fuel costs would rise to 5.3 billion euros ($5.60 billion) in 2017, from 4.9 billion in 2016.
The group had previously predicted a 2016 fuel bill of 4.85 billion euros and said fuel costs had risen more than expected in the fourth quarter due to the rising oil price and a strengthening dollar.
Lufthansa also on Friday confirmed a forecast for 2016’s adjusted earnings before interest and tax (EBIT) to remain around 2015’s level of 1.8 billion euros. It is expected to give a first forecast for 2017 profit when it reports full-year results in March.
Barclays analysts earlier said they expected it would be difficult for Lufthansa to maintain adjusted EBIT at 2016 levels this year, given rising fuel prices.
Reporting by Victoria Bryan; Editing by Adrian Croft