Deutsche Lufthansa, Europe's second-biggest airline, said third-quarter earnings dropped 27 percent as a slowing economy hurts bookings.

Operating profit fell to EUR575 million (US$805 million) from EUR783 million a year earlier, the Cologne, Germany-based company said in a statement today, while reiterating its guidance for the full year.

Lufthansa has cut a planned increase in winter capacity by two-thirds to 4 percent as slowing growth, declining consumer confidence and Europe's sovereign-debt crisis hurt demand. Full-year operating profit will still be in the high hundreds of millions of euros, Chief Executive Officer Christoph Franz said.

"Fears of a recession and concerns about the effects of the debt crises in Europe and the U.S. have already had a clear effect," Franz said today. While the result "does not have us jumping for joy," Lufthansa is still seeking annual earnings in "the upper three-figure million euro range" as many rivals are "struggling to make figures that are not in the red," he said.

Lufthansa rose as much as 3.7 percent and was priced up 1.5 percent at EUR10.20 as of 9:59 a.m. in Frankfurt, where the company also has its main hub, giving a value of EUR4.67 billion. The stock has declined 38 percent this, compared with a 32 percent drop in the six-member Bloomberg EMEA Airlines Index.

BMI Options

Lufthansa will exit unprofitable units with no "reasonable turnaround perspective," Franz said, and is continuing to explore "various disposals and strategic options" for its UK-based BMI unit, where the nine-month operating loss widened to EUR154 million from EUR90 million. The unit is unlikely to match 2010's full-year revenue and earnings, he said.

The carrier is also analyzing profitability at the Jade Cargo International Co. venture with Shenzhen Airlines, Franz said at a briefing, and is mulling the disposal of "non- strategic investments" such as information-technology unit Lufthansa Systems. No acquisitions are planned, he added.

Analysts had expected a third-quarter operating profit of EUR646 million, based on five estimates. Sales rose 6.7 percent in the period to EUR8.08 billion and net income declined 21 percent to EUR494 million, Lufthansa said.

Fleet Reduction

Earnings at the passenger-airlines unit deteriorated as new bookings "declined considerably," Lufthansa said, and the company plans to reduce the size of its fleet by six aircraft, Chief Financial Officer Stephan Gemkow said at the briefing.

Lufthansa said Sep. 20 it would miss a goal of beating 2010's EUR876 million operating profit while achieving a total at the upper end of a "three-digit million euro range."

Karl Ulrich Garnadt, CEO at Lufthansa Cargo, said last week that a night-flight ban in Frankfurt will cost at least EUR10 million per year. Some freight will be loaded onto trucks and taken to other airports to avoid the ban, Franz said today.

Lufthansa's fuel-price hedges average US$104 a barrel for 2012, Gemkow said, and the carrier is 63 percent hedged for the coming year.

Industrywide profit will drop by more than half this year and 40 percent in 2012, with the risk on the downside, the International Air Transport Association trade group reckons.

Air France Group, Europe's biggest airline, reduced its earnings target in July, saying it aims to break even this year versus a year-earlier operating profit of EUR28 million. The Paris-based company has pared a winter-capacity increase to 3.4 percent, cutting long-haul growth by almost half to 2.6 percent.

Air Berlin, Europe's third-biggest discount airline, said yesterday quarterly profit minus interest and tax fell 44 percent to EUR96.8 million, 30 percent short of estimates.