UPDATE 2-Lufthansa grounded by three-day pilot strike
* Lufthansa has cancelled about 3,800 flights
* Will cost airline tens of millions of euros
* Pilots wants early retirement scheme reinstated
* Lufthansa says no talks during strike period (Adds more comment from pilots, Lufthansa on talks, media reaction)
By Victoria Bryan and Peter Maushagen
FRANKFURT, April 2 (Reuters) - A three-day strike by pilots at Lufthansa over early retirement, which has grounded Germany's largest airline, shows no sign of ending early after management said there would be no further talks during the strike period.
Lufthansa has cancelled 3,800 flights during the strike, which runs until the end of Friday, and says the stoppage will cost it tens of millions of euros.
The pilots' walkout is the largest ever to hit the airline and the third strike at Frankfurt airport, Europe's third-largest by passengers, in six weeks after industrial action by security staff and public sector workers.
Both Lufthansa and the pilots say they are ready to talk. However, the pilots' union wants to see a new offer from management first and Lufthansa said on Wednesday that no new negotiations would take place while the strike continued.
"We'll first see out the strike and then we'll think about talks," Werner Knorr, Lufthansa Chief Pilot, told journalists.
Even if the strike is ended it is unlikely Lufthansa's flight schedules will return to normal before Saturday.
"It's a system with 1,800 flights a day, we can't just stop and start it. We're concentrating now on returning services to normal for Saturday," a spokeswoman said.
The stoppage by some of Lufthansa's most well-paid employees has prompted outrage from travel organisations, which say the three-day strike is over the top. Germany's best-selling tabloid Bild asked: "Do the Lufthansa pilots have their head in the clouds?"
The pilots want Lufthansa to reinstate a scheme that enabled them to receive 60 percent of their pay when they left their jobs before the legal retirement age.
Pilots at the airline used to be forced to retire at 60, leaving them with a five-year gap before legal retirement provisions kicked in at 65.
However, the retirement age for pilots was raised to 65 in Europe in 2011, and so Lufthansa says the scheme is no longer needed.
The union, Vereinigung Cockpit (VC), represents most of Lufthansa's 5,400 pilots. It is also negotiating over pay increases for the contract period from May 2012, but says the strike is solely over the retirement scheme.
A poll released on Wednesday by market researcher Forsa showed 71 percent of those surveyed, around 500 people, thought the pilots' demands were unjustified.
The pilots say they want the right to choose when to retire and that they shouldn't be forced to keep flying until 65. They also say the company is wrong to try and squeeze more cost cuts out of employees when it is already one of the most profitable airlines in Europe.
Lufthansa is in the midst of a programme to boost profits by 1.5 billion euros ($2 billion) by 2015, compared with 2011. It has taken measures such as cutting administrative jobs and expanding its low-cost carrier, Germanwings.
Carrying banners bearing the words "Pilots take on the responsibility, locusts take the profit", several hundred pilots in uniform marched on Lufthansa's main building in Frankfurt.
"It's a tough job and we should not force pilots to fly when they don't feel fit for the job just because they're worried they won't get the pay," Ilja Schulz, the head of union VC told the pilots to applause and cheers.
At Frankfurt airport, Lufthansa's home base, check-in desks had been renamed "rebooking" desks, free drinks and snacks were available and the main departure boards showed the word "annulliert", German for cancelled, next to most flights.
But queues were short and many passengers had already rebooked online, either to flights with other airlines or by train for shorter journeys. Those passengers at the airport seemed satisfied with the service being offered.
Lufthansa says it is able to run around 500 flights over the three days, just over 10 percent of its regular service. It was also able to bring back the Bayern Munich soccer team after their 1-1 draw with Manchester United in the Champions League on Tuesday.
Around 80-100 pilots did not take part in the strike, and Lufthansa commonly tries to keep more planes in the air by activating pilots who have long since moved on to desk jobs.
It said Carsten Spohr, a licensed A320 pilot who is due to take over as CEO next month, was not among those flying.
Analysts estimate the strike could cost the airline as much as 50 million euros ($69 million) in lost profit. Lufthansa made a 313 million euro net profit last year.
Brad Doble, managing director of Munich-based branding consultants Lambie-Nairn, said the strike would make passengers think twice about booking with Lufthansa in future. "You can't just cancel over 400,000 people's flights and not think that it's going to affect the brand," he said. "Loyalty in the airline industry is fickle, it's a commoditised industry."
While the pilots' union has promised not to strike over the Easter school holidays, which start on April 14 across most of Germany and run until the end of the month, they have not ruled out further action.
German Transport Minister Alexander Dobrindt called on Lufthansa and the union to seek a quick resolution. "Every day of strikes limits the mobility of hundreds of thousands of people," he was quoted as saying by Bild newspaper.
The strike also affects Lufthansa's cargo arm and its low-cost carrier Germanwings.
Separately, the German air traffic controllers, who have also threatened strike action in the past, reached a deal on Wednesday with their employer, the DFS, to increase pay by 1.8 percent for 2014. ($1=0.7249 euros) (Additional reporting by Kirsti Knolle; Editing by Erica Billingham and Susan Fenton)