LuxairGroup has posted a €12.5 million ($14 million) full-year net profit, up 32% year-over-year, but president and CEO Adrien Ney has warned of a “sharp decrease” for 2019 because the group faces “enormous pressure” in a complicated environment.

“We managed to increase all our activities in 2018—whether it was in terms of passenger numbers, or tonnage handled—but operating growth and profitability no longer go hand in hand, due to a sharp rise in costs and pressure on profit margins,” Ney said.

He went on to describe LuxairGroup as a strong company, with a sound balance sheet, adding: “We know how to overcome these difficulties, and despite a sharp decrease forecasted for 2019, I am confident about the future.”

In 2018, LuxairGroup generated a €592.7 million turnover, up 10.7% on 2017. However, group operating profits plummeted from €2 million to €764,000.

The results reflect an upswing for ground-handling arm LuxairServices and tour operator LuxairTours, but this was offset by increased LCC competition at passenger airline Luxair and a wider economic slowdown that impacted freight unit LuxairCargo.

“In 2018, Luxair was in direct competition on 11 of its routes compared with just four in 2011,” the company said.

Luxair has also experienced a steady decline in high-yield passengers over the past decade and the airline’s overall market share has almost halved since 2011, despite a 78% increase in passenger numbers.

However, a 12% seat-capacity growth in 2018 was met by an 11% increase in passenger numbers—nearly double the growth rate for 2017—keeping load factors stable at 64%.

“The airline’s operating profit remains negative. Additional revenue from the increase in passengers could not counteract rising costs, mainly from a decrease in unit revenue, an increase in wages, a sharp [34%] increase in kerosene prices, as well as CO2 emission certificates, the price of which has increased by 257% over 2.5 years,” LuxairGroup said, without breaking out specific numbers for its passenger-airline business.

Strikes, weather conditions and runway closures also impacted the results.

In March, Luxair took delivery of one Boeing 737-700, which will be joined by a second in May, taking the airline to four 737-700s, four 737-800s and 11 Bombardier Q400s.

Meanwhile, LuxairCargo posted record tonnage for the last three years, but pro­fitability “never improved” and growth slowed to just 2% in 2018. “The beginning of 2019 was marked by an 8% drop in tonnage handled from January to April. Currently there are no signs of improvement,” LuxairGroup said.

Global and European growth predictions “do not look very promising,” because of uncertainties, such as Brexit and geopolitical tension. LuxairGroup said a downturn in 2019 has “clearly been forecasted.”

“2019 is already set to be a very difficult year for Luxair Luxembourg Airlines. Passenger numbers are down by 2% compared with the first quarter of 2018. Competition is gaining momentum. Seven new destinations will be operated by competitor airlines from Luxembourg this year, including four in direct competition with Luxair,” the company said, warning this trend may continue throughout the year, impacting group profitability.

Despite the headwinds, LuxairGroup chairman Paul Helminger said Luxair guarantees direct flights to the main European business centers and capitals. “It’s a role that competitors could not take over, since they mainly serve their own hubs and consider Luxembourg as a destination amongst many others,” he said.

This means LuxairGroup needs to invest in digitalization and improved customer service, with a fraction of the budget of its larger rivals.

Victoria Moores