Lufthansa steps up cost cuts as economy worsens

FRANKFURT Wed Oct 31, 2012 5:41am EDT

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FRANKFURT (Reuters) - German airline Lufthansa (LHAG.DE) is increasing cost-cutting measures as it battles soaring fuel costs and a gloomy booking environment, the company said on Wednesday.

Even though the airline managed to increase its operating profit by 5.5 percent in the third quarter, far more than expected, Chief Executive Christoph Franz warned that times were still tough.

"The environment in which we have to operate is getting more and more demanding. So we will have to intensify our efforts," Franz said on Wednesday.

Europe's established airlines, hit by competition from discount carriers and Gulf rivals, are restructuring their businesses to reduce costs. Among others, Air France-KLM (AIRF.PA) is shedding about 5,000 jobs, with Lufthansa cutting 3,500.

Lufthansa has also frozen investments and is combining its loss-making European short-haul unit with its low-cost carrier Germanwings.

Europe's biggest airline by revenue had already warned in September that gains in its savings program - dubbed SCORE - would be offset by high jet fuel prices and a slowing economy, as well as fees and materials costs.

It predicted on Wednesday that fuel costs would rise by 1.1 billion euros ($1.43 billion) this year to 7.4 billion euros.

The company's third-quarter operating profit rose to 648 million euros, exceeding the consensus of 479 million euros in a Reuters poll. Revenues rose 6.2 percent to 8.31 billion euros, above a consensus of 8.22 billion.

Air France-KLM also reported a rise in operating profits for the quarter on Wednesday.

Lufthansa reiterated its 2012 forecast that operating profit would be in the medium hundreds of millions of euros. That does not include restructuring costs, which it said it now expects to be no more than 100 million euros this year because talks with unions on some planned measures have been delayed.

(Reporting By Marilyn Gerlach; Editing by David Goodman)

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