Where is the airline Industry is heading ? Part Two

Lufthansa, one of Europe's largest aviation player has assessed a weak industry outlook coupled with its success in pushing through its acquisition of Austrian Airlines (AUA) has analysts split on whether to buy or sell the company's stock.

Lufthansa last week looked set to win approval from European Union for the AUA acquisition, the last in a string of recent purchases, including Britain's BMI and Brussels Airlines.

However, the company also gave a gloomy outlook for the rest of 2009, upon earlier assessment of the economic crisis and an exodus of premium seat passengers had all but wiped out first-half operating profit.

Lufthansa has launched a EUR1 billion euro (USD$1.4 billion) cost-cutting programme to counter the downturn, as well as rising fuel costs, aiming to post an operating profit for this year.

With the industry environment looking set to remain weak in the short term, is it time to dump Lufthansa's stock or should investors snap it up as long as the carrier remains the financially strongest among its peers?

According to analyst, based on its superior financial strength and its anti-cyclical approach to acquisitions, analyst expect Lufthansa to emerge as a long-term winner from the current global economic crisis.

Elsewhere from Europe, Britain is aiming to replace short-haul aviation with high-speed rail travel and plans for such a network are well advanced, Transport Secretary Andrew Adonis told the Guardian newspaper.

The paper said in its Wednesday edition that the government plans to publish by the end of the year a route from London to Birmingham, which could be funded with a public-private partnership and which could be extended to Scotland.

There are also plans to run high-speed trains on the existing network, which could reduce journey times from London to Scotland to three and a half hours.

Cathay Pacific Airways warned of strong headwinds ahead, with concerns over high fuel prices dimming immediate prospects for a pick-up in demand.

The company has reported it had swung back to profit in the first half and said it had enough cash to fund aircraft purchases, but announced no interim dividend payment and did not rule out the possibility of tapping the equity markets further down the track.

Cathay Pacific continues to take delivery of new, more efficient aircraft, with two more Boeing 777-300 ER aircraft entering the fleet in the first half and the last of six Boeing 747-400 extended range freighters arriving in April.

LOW-END OF FORECAST

Cathay, Asia's No.4 carrier since being overtaken by Japan's All Nippon Airways, reported a net profit of HKD$812 million (USD$104.8 million) for January-June, compared with a loss of HKD$760 million a year earlier.

It booked fuel hedging gains of HKD$2.1 billion, while turnover fell 27 percent to HKD$30.9 billion.

The six-month result fell in the lower end of analysts' forecasts, which stretched from a low of HKD$400 million to a high of HKD$3 billion due to widely varied estimates for hedge gains.

Cathay's fuel hedging contracts in the first six months yielded mark-to-market gains of HKD$2.1 billion, compared with a loss of HKD$7.6 billion for full year 2008, the company said in the statement.

Rival Singapore Airlines, the world's second largest airline by market value, announced its first quarterly loss in six years, and warned that it could post an annual loss if adverse conditions continued.

Cathay Pacific is also assessing whether to adjust its structure if changes such as a further weakening in its premium travel business turn out to be cyclical or structural in nature.