By Maria Sheahan and Joanna Plucinska
BERLIN (Reuters) -Lufthansa on Thursday surprised the market with a solid outlook for the fourth quarter, with costs falling and bookings strong ahead of the Christmas holiday season, sending its shares up over 6.5% on Thursday.
The German airline group reported quarterly profits slightly above analysts' consensus on the back of robust travel demand this summer.
"There seemed to be some expectation of a profit warning today. It didn't come, so there's been a bit of a relief rally," said analyst Neil Glynn of AIR Control Tower.
Europe's airlines have reported record quarterly profits as consumers have kept travelling despite a cost of living crisis, but the outlook has been clouded by rising oil prices due to the conflict in the Middle East and risks of recession.
Lufthansa reported third-quarter adjusted earnings before interest and tax (EBIT) of 1.47 billion euros ($1.56 billion), up 31% year-on-year and slightly above average expectations for 1.43 billion in an analyst consensus published by the company.
"Even though the geopolitical situation remains challenging, our booking outlook gives us reason to be positive - not only for a very good group result this year, but also beyond," Chief Executive Carsten Spohr said.
Lufthansa shares were set for their biggest daily gain since June 2022, according to Eikon data, in the wake of the earnings announcement. Shares had fallen to a one-year low on Wednesday.
OUTLOOK
Demand for both short-haul and long-haul flights remained high, especially among leisure travellers, Lufthansa said, and the trend towards more bookings in pricey premium classes continued.
Costs were 0.9% lower than the same quarter last year despite rising inflation with the expectation of a similar result in the fourth quarter and a decline of unit cost next year.
Because of the falling costs and higher flight demand, the group expects to post a positive operating result for the fourth quarter, helping it achieve its aim of an adjusted group EBIT of more than 2.6 billion euros for the full year 2023.
Next year, Lufthansa expects the amount of seating capacity available to passengers to increase further to around 95% of pre-pandemic levels. Globally capacity will remain restricted because of supply chain problems, bolstering ticket prices, Spohr said on an analyst call.
"We continue to see a more cautious pace of capacity restoration at Lufthansa vs other European peers ... likely a sensible move given the increasingly permanent-looking impairment in the key corporate segment," said Bernstein analyst Alex Irving in a note.
($1 = 0.9438 euros)