Stiffer competition, worker strikes, and unfavorable exchange rates. It’s all going wrong for Lufthansa, which shocked the markets with a profit warning today. The German airline cut nearly €1 billion ($1.35 billion) from its forecast for operating profit this year and next, pushing its shares sharply lower; they were down more than 14% at the time of writing:
The carrier warned about intensifying risks last month, when it reported a €252 million loss for its latest quarter. Strikes by pilots and problems in Venezuela (where money the airline made from ticket sales is stuck in the country, thanks to currency-exchange restrictions) each accounted for some €60 million in losses, and company officials have warned that state-owned airlines from the Gulf are also taking away long-haul business.
But as we have chronicled on previous occasions, in retrospect Lufthansa’s profit warning shouldn’t have come as such a surprise. To some extent the airline is participating in the time-honored tradition of “taking a bath” shortly after the arrival of a new CEO, front-loading bad news early in a new boss’s time in office. (The practice is also sometimes known as “kitchen sinking,” “clearing the decks,” “wiping the slate,” and many other colorful euphemisms.)
Carsten Spohr took over the helm at Lufthansa last month, and will present his strategic plan for the company to investors and analysts next month. This will now feature an acceleration of previously announced cost cuts and capacity reductions, the company said today. Many of Lufthansa’s problems are real, but like countless new bosses before him, Spohr will benefit by lowering expectations as he begins his tenure.