Lufthansa bolstered by leisure travel demand, but costs bite

Lufthansa sees 2023 adj EBIT at more than 2.6 bln euros

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Q2 adj EBIT 1.09 bln euros vs consensus 1.04 bln

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Aug-Dec bookings at more than 90% of pre-crisis levels

BERLIN, Aug 3 (Reuters) - German airline group Deutsche Lufthansa on Thursday gave an upbeat forecast for travel demand, especially in lucrative premium classes, but its share price slumped as investors worried high costs could eat into profits.

Unit costs at Lufthansa rose from a year earlier in the quarter through June, which comes after rival Air France-KLM last month revised up its forecast for costs this year.

Shares in Lufthansa were 5.4% lower at 3.35 euros by 0845 GMT.

Lufthansa sought to calm concern by saying it expected rising costs to moderate in the second half of the year. In addition, productivity improvements in 2024 would support unit cost reduction, it said.

"The market didn't like the higher non-fuel unit cost guide from Air France-KLM last week, so there's a risk of the same here," Deutsche Bank analysts said, while adding that higher costs at Lufthansa were likely to be offset by higher yields.

Bookings for August to December were on average at more than 90% of pre-pandemic levels, prompting Lufthansa to expand its capacity to 88% of the 2019 level in the third quarter, the group said.

Airlines have benefited from a boom in leisure travel since the easing of COVID-19 restrictions, though there has been concern that the surge in demand - and resulting strong earnings - could lose momentum in the autumn season as high inflation starts to squeeze passenger spending.

Lufthansa rival IAG last month said it was "mindful" of uncertainty in the wider economy, even as it reported consensus-beating quarterly profit, and Ryanair was cautious on demand for the rest of 2023.

Lufthansa, which owns the Austrian Airlines, SWISS and Eurowings brands, seemed more upbeat on the market outlook, saying it was returning two more A380 superjumbos to scheduled service this year, with more to follow along with new Boeing 787s and Airbus A350s in the coming year.

On long-haul routes, it said the increase in capacity would primarily come from the expansion of connections to Asia, given the re-opening of major markets such as China and Japan.

In April to June, Lufthansa's adjusted earnings before interest and tax nearly tripled to 1.09 billion euros ($1.19 billion), slightly above consensus for 1.04 billion, from 341 million a year earlier.

For the whole of 2023, it now expects adjusted EBIT of more than 2.6 billion euros, having previously forecast a significant increase from last year's 1.5 billion.