Cloudy, With Little Chance Of Profit

Another bummer summer for European airlines is creating headwinds for Lufthansa

- William Wilkes, with Richard Weiss

As Air Berlin slid into insolvency two years ago, Carsten Spohr spotted an opportunity to strengthen his response to low-cost carriers Ryanair, EasyJet, and Wizz. The chief executive officer of Deutsche Lufthansa AG had been seeking to make Eurowings, his budget unit, more competitive by marrying bargain-bin fares with Lufthansa’s top-shelf brand name. Spohr snapped up Air Berlin planes, employees, and landing slots, but since then Eurowings has racked up almost €500 million ($570 million) in losses. This spring, Spohr halted expansion of Eurowings after soaring fuel prices and too many empty seats squeezed profits, helping drive Lufthansa’s stock down 10% this year. In the company’s annual report, he said integrating Air Berlin had made for an “extremely difficult” year. “We did not always live up to our premium promise to our customers and disappointed many of our passengers with delays,” he said.

Lufthansa’s woes are emblematic of a European industry that’s facing a second straight bummer summer. Carriers are grappling with gyrating fuel prices because of U.S. tensions with Iran and the escalating trade war with China. Brexit jitters have sapped consumer confidence among Britons, spurring airlines to ponder airfare cuts to tease out shy demand. Germans face crowded airspace, jammed security lines, and strike threats. Eurocontrol, the regional air traffic authority, says there could be 40% more delays this summer than there were last.