 "Lufthansa says profits set to dip in 2017 despite pilots' pay deal")
Lufthansa expects profits to fall slightly this year due to lower fares and a rising fuel bill, the German airline said on Thursday, despite clinching a long-sought deal on pay and pensions with its pilots this week.
Like its rivals, Lufthansa saw ticket prices come under pressure in Europe last year from overcapacity and fierce competition from airlines with lower cost bases.
While it expects the decline in ticket revenue to ease this year, the company is still trying to cut costs to compete better with leaner rivals. The carrier achieved what it described as "breakthrough" on Wednesday when it agreed a deal on pay and pensions with pilots.
Chief Financial Officer Ulrik Svensson said on Thursday the year had started well for Lufthansa, with increasing traffic, the agreement with the pilots and unit revenues even improving in Asia compared with last year.
But revenues were under pressure in Europe, he said, after the group reported results for 2016 in line with expectations.
Many analysts have expressed concern that European airlines are engaging in a damaging battle for customers, putting more seats onto the market than there is demand for, which will lead to lower profits this year.
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Lufthansa has said it will increase capacity by 12 percent this year. Of that, 8 percent is thanks to the takeover of Brussels Airlines and a deal to lease 38 planes and crew from Germany's Air Berlin.
The fuel bill is expected to increase by about 350 million euros ($376 million) this year to 5.2 billion euros, and Lufthansa said efforts to reduce costs would not be enough to offset the rising fuel bill and pressure on ticket prices.
It, therefore, expects adjusted earnings before interest and tax this year to be slightly lower than the 1.75 billion euros reported for 2016.
Lufthansa reduced unit costs, not including fuel or currency, by 2.5 percent last year and is targeting a similar reduction for this year.
Shares in Lufthansa were indicated to rise 1.7 percent, following similar gains on Wednesday when the share price closed at 14.415 euros, after the deal with the pilots was announced.
"It's a real success. The pilots made major concessions, which I did not think would happen," Union Investment fund manager Michael Gierse said of the deal on pay and pensions.