#Lufthansa CEO: “Weak Euro causing Headwinds” – So, no drop in ticket prices?

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Always is good to be aware about what is happening in the airline markets around the world. The huge drop in the oil prices since last June has created the real expectation on customers that airlines ticket prices have to drop in the near future, but that hasn’t been seen as airlines companies buy oil in advance (hedged) so their actual expense in oil has been set in the past with older (and higher) prices -that is the common speech. A short interview with Carsten Spohr, Deutsche Lufthansa AG Chief Executive Officer, who talks about competing with Gulf carriers (Emirates, Qatar, etc), the impact of a weaker euro on the airline, and the benefits of lower crude oil prices provides some insights about the leading german european company and one of the top aviation groups in the world. (Source: Bloomberg)

Highlights:

  • N# 1 Aviation Group in the world – Asia is a key market.
  • 24k weekly flights (Group: Swiss, Austrian, Brussels etc).
  • The competition is very tough at the very end of the market were all is about #Price.
  • Quality and Premium passengers, Non Stop offer beats Gulf carriers competitors.
  • The market is too open for the level of fairness. Or is not fair enough for the level of openness.
  • Aviation is out of WTO (World Trade Organization), so there are asymmetries in the market.
  • Market is asymmetric because the market has very different sizes and very different rules/laws to work and play by.
  • Every year the competition is tougher besides the market has been growing.
  • Lufthansa has been on the “black” for years, 1B euro profit last year, but needs to increase the black (profitability).
  • Oil prices drop help for profitability, nevertheless oil hedge for long time balance that.
  • Overall weak euro hurts German company as creates higher oil prices in dollars.

So, besides oil prices drop may help to increase the profitability of airlines -if it remains thru time-, this is not reflected in the short term as most companies are hedged on oil with past prices, so the impact would be in the mid-term. In the case of European-hub companies, like Lufthansa, were it’s main market is based in Europe, the foreseen weakness of euro will impact increasing the expense on oil which its market price is set in dollars. Then, according to “airlines speech”, low oil prices would be balanced by weakness of euro at the bottom line. A valid argument to keep or increase their profitability and/or a legitimate excuse to avoid dropping air tickets prices to customers? What do you think?

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