Lufthansa warns over cost pressure as profits fall sharply

Lufthansa warns over cost pressure as profits fall sharply

Lufthansa’s cost structure must become more competitive after profits fell sharply last year, strike-prone staff have been warned.

Chief executive Carsten Spohr wants to lower costs by offering more short and long-haul services from next winter under the budget Eurowings brand, where pilots’ wages are lower compared with the group’s main business.

But Lufthansa’s pilots are resisting the changes – the airline was hit by 15 days of strike action last year, forcing the cancellation of more than 8,600 flights.

Spohr said: “Given the results that we achieved in our core business, we can no longer regard sticking to inherited uneconomic structures as an option for the future of the Lufthansa group. The competitive pressures on our airlines will only further increase.

“We have substantially improved our products and services, and we’ve further raised the quality of our group member carriers. We’re back among the world’s best airlines in the eyes of our customers.

“What we need to do now is lay the foundations on which we can regain a leading position in our industry in economic terms, too.”

He added: “After the safety of our flight operations, it’s ensuring our future viability that is our paramount priority,”

The German airline expects adjusted operating profit to reach more than €1.5 billion in 2015, compared with €1.2 billion last year.

But the group could not rule out further strikes by pilots. It warned that these labour issues, as well as oil prices, the euro-dollar exchange rate and passenger yields would be the most important influencers of profit development in coming months, the Financial Times reported.

Lufthansa faces competitive pressure from low-cost carriers in Europe as well as Gulf airlines on long-haul routes to Asia.

The group’s 2014 results were boosted by declining fuel costs expenses but strike action cost the company €232 million.

The company reported a net profit of €55 million last year under international accounting rules, down 82% compared with 2013.

However, Lufthansa recorded a net loss of €732 million under German financial reporting standards, partly because of increased pension liabilities, and does not plan to pay a dividend in 2015.


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