Lufthansa being hit hard by low cost rivals

Shares drop to lowest level in over two years

By Charles Riley, CNN Business
Hannelore Foerster/Getty Images

(CNN) - Lufthansa's stock plummeted Monday after the German carrier warned that intense competition from low-cost European rivals was hurting its bottom line.

Shares in the airline dropped more than 12% in Frankfurt to €15.47 ($17.35), their lowest level in over two years.

Lufthansa on Sunday issued a profit warning, downgrading its expected margins for 2019 to between 5.5% and 6.5% from an earlier estimate of 6.5% to 8%.

The airline said that it was facing intense price competition on short flights within Europe from budget airlines that are more concerned with growth than profit margins.

Lufthansa said in a statement that yields, especially in Germany and Austria, "are affected by sustained overcapacities caused by carriers willing to accept significant losses to expand their market share."

The German carrier said that longer flights continue to perform well, citing strong performances on transatlantic and Asian routes. But its budget division, Eurowings, would need "further turnaround measures," it added.

The profit warning also factors in a €550 million ($617 million) hike in fuel costs.

The negative outlook from Lufthansa affected other European airlines Monday. Budget carriers Ryanair and EasyJet were among the biggest losers, dropping roughly 4.5%. Air France KLM shares dipped 3%.

The European aviation industry has had a tough time recently. Icelandic budget carrier Wow Air ceased operations in March, following the demise of Germania and British airline Flybmi a month earlier.

Some carriers such as Norwegian Air and tour operator TUI have also been hit by the grounding of Boeing's 737 Max, forcing them to cancel flights or lease alternative aircraft.

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