Lufthansa Is Experiencing Some Turbulence

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What's going on?

Deutsche Lufthansa, Germanys flagship airline, saw its stock drop 6% on Thursday as it said that it would make less money than expected this year, partly because recent terror attacks are hurting future bookings.

What does this mean?

The biggest hit is coming from advance bookings for long-haul routes to Europe, which suggests that non-Europeans have curtailed their travel plans to the continent. Recent terrorist attacks are partly to blame but Lufthansa also cited greater political and economic uncertainty – which means that it feels that the weak-ish global economy is also to blame. UK-based discount carrier EasyJet added to the malaise on Thursday as it reported that revenue in its most recent quarter fell. It also said recent terrorist attacks had impacted sales and hurt consumer confidence.

Why should I care?

For stocks: European airlines are facing fierce headwinds.


Air travel is tied to economic growth (e.g. youre less likely to go away for a long weekend if youre not going to get that raise, and your company is less likely to send you abroad on business if its struggling to make money). With growth in Europe likely slowing from the first quarter and generally being pretty squidgy its a challenging environment for airlines. Throw in concerns that the Brexit vote could further dampen the economy, especially in Britain (which is a large market for both consumer and business travel), as well as the ongoing threat of terrorism, and you can cue up the inevitable pun about the industry hitting some turbulence.



The bigger picture: Theres a real economic cost to terrorism.


Terrorist attacks are, of course, tragic human events but they also have a damaging impact on specific industries, especially tourism. Airlines, tour operators (like Thompson or Tui) and luxury goods companies (who sell a lot of products to, say, tourists shopping in Paris) are among the types of companies that suffer a significant economic cost.

Originally posted as part of the Finimize daily email.

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