BERLIN (Reuters) – German airline Lufthansa (LHAG.DE) announced plans on Thursday to cut costs at its Austrian Airlines, Brussels Airlines and Lufthansa Cargo businesses to revive profits but faces a fresh challenge to its efforts with a cabin crew strike this week.
FILE PHOTO: A view of an office building of German airline Lufthansa in Frankfurt, Germany March 14, 2019. REUTERS/Ralph Orlowski
Lufthansa has reacted to competition from Ryanair (RYA.I) and easyJet (EZJ.L) by cutting costs and announcing a turnaround plan in June for Eurowings, which it said on Thursday was paying off as it reported better-than-expected quarterly figures.
Its shares, which have fallen 16% in the last year, were up 8.4% at 1144 GMT, making them the biggest gainer on the German blue-chip index .GDAXI as signs emerged of new efforts to resolve the dispute with trade unions.
Cabin crew launched a strike over pay and pensions that will result in the cancellation of 1,300 flights on Thursday and Friday and affect 180,000 passengers. Trade union UFO has called for the walkout on what amounts to one in five of the carrier’s planned 6,000 flights.
One day of strike action would cost the company an estimated 10 million to 20 million euros, finance chief Ulrik Svensson said. Even rumors of a walkout would deter customers, he added.
Chief Executive Carsten Spohr said he was prepared to enter into arbitration talks with all three unions that represent cabin staff, including UFO. Lufthansa and UFO have been at odds for months over the union’s legal status.
UFO said it would talk to the airline this weekend and would not prolong the strike beyond Friday or extend it to other airlines in the group.
Lufthansa said quarterly adjusted earnings before interest and taxation (EBIT) fell 8% to 1.3 billion euros, ahead of average analyst forecasts for 1.2 billion euros, while revenues rose 2% to 10.2 billion euros, also ahead of consensus.
On Thursday, it said slower growth at its competitors was helping to counter pricing pressures in Europe.
Lufthansa said the Eurowings plan was showing first results and it should achieve a margin of 7% in the longer term.
Lufthansa said it would seek additional annual cost savings at Austrian Airlines of 90 million euros ($100 million) by the end of 2021 that would include staff cuts, closing decentralized bases to focus on its Vienna hub and standardizing its fleet.
Spohr said 700-800 jobs would be cut at the Austrian airline.
“In an increasingly challenging market environment, it is more vital than ever that we consistently take every action within our influence and further reduce our costs,” Svensson said.
“We have resolved several further measures to improve the performance of our only modestly profitable and even loss-making companies,” he said.
Lufthansa said it would make changes to the route network at Brussels Airlines, streamline its administration and standardize its fleet.
It will cut the size of the fleet at Lufthansa Cargo, withdrawing all 10 Boeing MD-11 freighters by the end of 2020, and adding two Boeing 777Fs to the seven it already uses.
Writing by Emma Thomasson; Editing by Michelle Martin and Elaine Hardcastle