Lufthansa narrows losses but signals more action needed

Lufthansa narrowed its operating loss in the first quarter, helped by cheaper fuel, but said on Tuesday further action was needed to lower costs, especially in light of a rising pension burden and staff-related expenses.

Lufthansa is in a long-running dispute with its pilots over retirement benefits and low-cost carrier expansion. Talks with pilots and strike action were suspended after the crash of one of its Germanwings planes at the end of March. Like Air France-KLM, which also reported a smaller first-quarter loss last week, Lufthansa is trying to bring costs down in order to better compete with rivals from the Gulf and Turkey and low-cost carriers in Europe.

Lufthansa said unit costs rose 2.8 per cent in the quarter, while yields, a measure of ticket prices, dropped 2.9 per cent excluding currency effects. "We continue to see great pressure to act," chief financial officer Simone Menne said in a statement, highlighting an increase in pension liabilities. "We cannot accept the continuing increase in fees or the development of our unit costs."

IAG, the parent company of British Airways and Iberia, has successfully cut costs and reported a profit for the first quarter, which is traditionally loss-making for airlines as fewer people travel during the winter. Lufthansa last week proposed wider mediation to cover all outstanding pay issues last week in a bid to bring an end to the row.

The pilots’ union has so far not responded to the proposal. The airline, including Swiss and Austrian Airlines, reported a first-quarter adjusted loss before interest and tax of €167 million , slightly better than the average analyst forecast for a loss of €172 million. The first quarter at Lufthansa was overshadowed by the Germanwings crash on March 24th.

Evidence indicates co-pilot Andreas Lubitz deliberately locked the captain out of the cockpit and steered the plane into a French mountainside, killing all 150 onboard.

The airline said that while the crash had affected bookings for a very short time, there had been no impact at its main Lufthansa brand. Insurance is expected to cover the claims brought by the families of the victims.

While the euro, which weakened by more than 11 percent against the dollar in the first quarter, boosted Lufthansa’s revenue in the first three months of the year, it is also offsetting the benefit of cheap oil. Lufthansa now estimates a 2015 fuel bill of €6.2 billion , against an earlier estimate of €6 billion.

Reuters