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Airlines Report Profit Loss Due to Threat of Terrorism

The summer usually sees a peak in earnings, but two European carriers are warning that terror-related incidents have exacerbated already tough market conditions.

Both Lufthansa and EasyJet have warned that the threat of terrorism has and will continue to have an impact on profits.

With travelers shying away from European destinations following attacks in France, Belgium, and more latterly, Germany, Lufthansa has revised its 2016 financial forecast. The carrier expects to see a decline in operating profit of up to nine percent in unit revenue. Germany’s flagship airline, says Bloomberg “is the first European airline to tie terrorism concerns directly to a profit warning.”

Low-cost carrier EasyJet is also experiencing a downturn. For the first time, it’s offering summer fare promotions in the hope of recouping losses. Speaking to the media earlier this week, Chief Executive Officer Carolyn McCall was quoted in Bloomberg as saying, “We’ve never, ever, in a summer had to promote seats … and we have done so this year. From a customer point of view, that’s fantastic; from a business point of view, your pricing being as low as that in your peak summer trading period is not such a good thing.”

The carrier’s revenue per unit is down by approximately 7.5 percent for the three months through to September. Due to uncertainty following this month’s terrorist attack in Nice and the coup in Turkey, it has not released a revised profit outlook for the remainder of the fiscal year.

The impact of terror-related incidents, however, appears to be magnifying the already difficult conditions in which carriers are operating.

While a drop in fuel prices has allowed many to add extra seats, those gains have been decimated because this additional seating has actually surpassed demand. Add in the effects of bad weather, Brexit and air traffic control strikes and the situation gets worse.

Jack Diskin, analyst at Goodbody Stockbrokers in Dublin, told the website, “it’s the worst possible timing in the year for these type of headwinds.”

While the near outlook isn’t rosy in respect of profits, there is some good news to report in terms of capacity growth, with both Lufthansa and EasyJet aiming to up these respective figures by 5.4 and 6 percent in the period through to September.

[Photo: J. Miguel Rodriguez, Creative Commons]

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