FRANKFURT: A profit warning from Lufthansa sent the German airline's shares plunging by 11% and dragged down rivals across the sector as they battle for business in a highly competitive European market.
In a statement late on Sunday, Lufthansa forecast EBIT of between 2 billion euros and 2.4 billion euros ($2.2-2.7 billion), compared with the previously targeted 2.4 billion euros to 3 billion euros.
"Yields in the European short-haul market, in particular in the group's home markets, Germany and Austria, are affected by sustained overcapacities caused by carriers willing to accept significant losses to expand their market share," it said.
Lufthansa cited falling revenue from its Eurowings budget business as a key reason for the profit warning. Reveue here was forecast to decline significantly in the second quarter.
It also cited high jet fuel costs, which it said could exceed last year's figure by 550 million euros, despite a recent fall in crude oil prices.
Shares in rivals were hit by the profit warning. Ryanair was down 3.7%, those in British Airways owner IAG , Wizz Air, Easyjet fell between 1.9% and 2.7%.
"The group expects the European market to remain challenging at least for the remainder of 2019," it said.
Ryanair last month reported its weakest annual profit in four years and said earnings could fall further as European airlines wage what Chief Executive Michael O'Leary described as "attritional fare wars."
EUROWINGS TURNAROUND PLAN
Lufthansa's outlook is more positive for its long-haul business, especially on transatlantic and Asian routes, it said.
Lufthansa's adjusted margin for earnings before interest and tax (EBIT) was forecast between 5.5% and 6.5%, down from 6.5% to 8% previously, it said in a statement.
Lufthansa said it would make a 340 million euro provision for in its first-half accounts, relating to a tax matter in Germany originating in the years between 2001 and 2005.
The Network airlines unit -- its core brand, Swiss and Austrian Airlines -- is expected to reach an adjusted EBIT margin of between 7% and 9%, down from 7.5% to 9.5%. For its Eurowings business, the forecast was for between minus 4% and minus 6%, against about flat previously.
Eurowings management is due to implement turnaround measures to be presented shortly, Lufthansa said, adding that it will defend its market position on short-haul routes.
A research note from Berenberg bank said that it interpreted this statement as a signal that the group is unlikely to reduce capacity there, adding that it was encouraged by Lufthansa noting that it will expand long-haul capacity only marginally in the coming winter.
Lufthansa will hold an investor day in Frankfurt on June 24.
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