European airlines struggle under strain of credit crunch

COPENHAGEN: Europe's airline industry felt the pinch from the global financial crisis Wednesday as the Denmark-based low-cost carrier Sterling Airways filed for bankruptcy and German giant Lufthansa reported a 75-percent nosedive in net profit.

Sterling, which had been in difficulty for several years, announced it was abandoning efforts to keep the airline flying, blaming exposure to the collapse of Iceland's financial sector.

"Over a three to four week period, the whole financial system melted down, and that resulted in our shareholder being unable to continue his support to the company," Sterling said in a statement, nearly three months after it was sold to Icelandic business tycoon Palmi Haraldsson.

The collapse of the company left passengers left stranded. All flights were cancelled and travellers holding tickets would not be refunded, Sterling said.

The company, which was earlier owned by Northern Travel Group, comprised of Icelandic investment groups Fons, FL Group and Sund, would file for bankruptcy later Wednesday, the statement added.

Meanwhile, Lufthansa airline reported a 75-percent fall in net profit in the third quarter due to high fuel costs and weakened sales arising from the credit crunch.

The airline posted 149 million euros (189 million dollars) in net profit between July and September, after saying Tuesday that it would cut its 2008 operating profit target to 1.1 billion euros from 1.38 billion euros, the same figure it posted last year.

Operating profit in the third quarter plunged by 53.4 percent to 279 million euros, the company said in a statement.
In the first nine months of the year, operating profit fell by 9.3 percent to 984 million euros. Net profit during the same period plummeted by 65.1 percent to 551 million euros.

The company, however, on Wednesday said it would take a stake of 80 percent in British carrier BMI.

The increase from Lufthansa's previous 30-percent stake in BMI, formerly known as British Midland, was the result of an option held by investor Michael Bishop to sell his stake of 50 percent plus one share to the German carrier.

Lufthansa's nosedive in profits came as airlines reported some relief from falling oil prices following record highs in July. The lowering of fuel costs however was not enough to significantly improve the latest results.

Other airlines have also reported difficulties.

Air France-KLM last week said it would struggle to meet its billion-euro earnings target and that it would trim its investment plans.

It unveiled a plan to cut costs by up to 1.2 billion euros over the next five years.

The future of ailing Italian carrier Alitalia also remained uncertain.

British Airways earlier this month reiterated the company's interest in a partnership with Alitalia.

The airline, which is 49.9 percent state-owned, is losing about three million euros (4.3 million dollars) a day and has debts totalling some 1.2 billion euros, which will have to be shouldered by the Italian taxpayer.

Non-European airlines were feeling the strain too, with carriers worldwide expected to lose around 5.2 billion dollars this year owing to sharply higher oil prices and declining demand, the industry association IATA said on October 17, with losses expected to continue next year.