Lufthansa says cost-cutting to continue as profits fall

Pilots staged 10 strikes last year over changes at the airline

Tough competition from rivals in Europe and elsewhere means Lufthansa cannot let up on cost-cutting, the German airline said, even though it faces more strikes from pilots over such measures.

It said its core German airlines unit comprising the Lufthansa and Germanwings brands saw profits fall by almost 11 per cent in 2014 to €252 million. Lufthansa is being squeezed by budget carriers on routes within Europe and rivals such as Emirates and Turkish airlines on long routes.

Moves to alter costly wage agreements and expand low-cost operations have met with resistance from pilots who staged 10 strikes last year and have threatened more.

"We are very clear that we need further measures," chief financial officer Simone Menne told journalists after the group reported annual results on Thursday.


Lufthansa said almost all the €2.5 billion of profit improvement delivered by the Score restructuring programme between 2012 and 2014 had been eaten away by falling ticket prices and cost inflation.

IAG, parent company of British Airways, has cut costs and developed low-cost operations ahead of its continental rivals. It raised its 2015 profit forecast last month.

To lower costs, Lufthansa is expanding its Eurowings regional unit, where crew are not on the same collective labour agreements as those at Lufthansa and Germanwings. It has said it will only grow its main brands if it gets concessions from staff.


Ms Menne said yields, a measure of pricing which fell 3.1 per cent last year, would continue to fall significantly in 2015. “Competition is not easing up,” she added.

Still, Lufthansa forecast an increase in adjusted earnings before interest and tax (ebit) for the group to over €1.5 billion from €1.2 billion in 2014, as investment in new planes and cabins start to pay off and due to an expected increase in profits at its catering and cargo units.

It said it would invest €2.9 billion in 2015, as it takes delivery of new planes and would then limit annual spending to €2.5 billion in 2016 and 2017.

Lufthansa said it now expected a fuel bill of €6 billion in 2015, down from €6.8 billion in 2014. That’s an increase from an estimate of €5.8 billion made in January and Ms Menne said it was difficult to forecast given swings in the oil price and the dollar-euro exchange rate.


Charlie Taylor

Charlie Taylor

Charlie Taylor is a former Irish Times business journalist