Bloomberg News

Lufthansa to Scrap 3,500 Administrative Posts After Loss

May 03, 2012

A passenger passes Deutsche Lufthansa AG self check-in machines at Hamburg airport. Photographer: Michele Tantussi/Bloomberg

A passenger passes Deutsche Lufthansa AG self check-in machines at Hamburg airport. Photographer: Michele Tantussi/Bloomberg

Deutsche Lufthansa AG (LHA) will scrap 3,500 administrative positions, or about 20 percent of the clerical total, as the German airline seeks to improve profitability with a 1.5 billion-euro ($2 billion) cost-reduction program.

The job cuts, 2,500 of them in Germany, will help deliver one-third of the savings Lufthansa is seeking through 2014, the Cologne-based carrier said today. A global purchasing project will also shave 200 million euros from expenses this year, and “traffic optimization” should recoup at least 10 million euros.

Europe’s second-biggest airline, which has about 117,000 employees, 16,800 in clerical posts, said yesterday its first- quarter operating loss widened to 381 million euros from 169 million euros a year earlier as economies slowed and the cost of restructuring and fuel weighed on earnings. The shortfall was bigger than the 297 million-euro figure anticipated by analysts.

“The miss came as a result of incrementally higher staff costs and lower-than-expected yield,” Bank of America analyst Mark Manduca said in a note, adding that full-year operating profit is likely to fall short of a consensus estimate of 495 million euros, which assumes more positive developments in pricing. The new consensus may be 20 percent lower, according to the analyst, who reiterated his “underperform” rating.

‘Safeguard’

Lufthansa, which said it can’t rule out job cuts on the operational side, fell as much as 3.1 percent to 9.60 euros and was trading 1.9 percent lower as of 4:22 p.m. in Frankfurt.

“Higher taxes, fees and charges put a massive strain on our quarterly result,” Chief Executive Officer Christoph Franz said today. The savings program “is our own response to these additional burdens. It will safeguard Lufthansa’s position.”

Competitor International Consolidated Airlines Group SA (IAG) plans to cut total pilot pay by 62 million euros at its Iberia arm to lift productivity 25 percent and match levels at sister- unit British Airways. European No. 1 Air France-KLM Group (AF) is also seeking more than 2 billion euros in annual savings.

Fuel costs are continuing to clip airline earnings after the price of Brent crude increased 8.7 percent this year to $116.74 a barrel in London.

Stockholm-based SAS Group (SAS), the Nordic region’s largest carrier, said today its first-quarter net loss widened to 729 million kronor ($108 million) from 373 million kronor after analysts had predicted a 679 million-kronor deficit. The stock fell as much as 14 percent and was down 13 percent in the Swedish capital.

Short-haul Consolidation

Lufthansa, which boosted first-quarter sales 5.6 percent to 6.6 billion euros, has begun its SCORE savings program -- from Synergies, Costs, Organization, Revenues, Execution -- after completing a package that saved 1 billion euros through 2011.

As part of the plan, the company has frozen capacity at its main brand and is consolidating administrative operations between its short-haul outfit and Germanwings, a low-cost division that narrowed its losses in the first quarter.

Short-haul routes out of Cologne will in future be operated under the Germanwings brand, while those from Dusseldorf, Hamburg and Berlin will fly in Lufthansa livery, CEO Franz said in a conference call with journalists today.

The U.K.-based BMI unit, which Lufthansa sold to IAG on April 20, had a 70 million-euro pretax loss, though it booked a 2 million-euro gain after valuation and disposal proceeds.

Austrian, Swiss

Austrian Airlines, which is shifting flight operations to regional arm Tyrolean Airways to tap a lower cost base, lost 67 million euros and the Swiss unit had a 6 million-euro shortfall.

Engineering division Lufthansa Technik had a 62 million- euro profit and is developing a new structure to save 30 million euros, while cargo operations generated 19 million euros.

Freight capacity will be cut 2 percent in 2012, according to Chief Financial Officer Stephan Gemkow, who exits this summer to become CEO at retail holding company Franz Haniel & Cie GmbH.

Gemkow said that a decision on expanding Lufthansa’s stake in Brussels Airlines will be made next year, and will be dependent on the Belgian unit improving its profitability.

Brussels took delivery of two leased Airbus A320s from General Electric Co. (GE:US)’s GE Capital Aviation Services unit, the latter said in a statement today. The carrier, which is 45 percent owned by Lufthansa, is modernising its fleet as part of its own cost improvement program, Brussels spokeswoman Wencke Lemmes-Pireaux said by telephone.

To contact the reporter on this story: Alex Webb in Frankfurt at awebb25@bloomberg.net

To contact the editor responsible for this story: Chad Thomas in Berlin at cthomas16@bloomberg.net


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