Lufthansa to cut costs in bid to reduce impact of fuel costs

City A.M. Reporter
GERMAN flagship airline Deutsche Lufthansa vowed to make tough cost cuts and restructure its loss-making Austrian unit as it warned yesterday that economic uncertainty and high fuel prices would cut into its operating profit this year.

Lufthansa saw operating profit drop by almost 20 per cent to €820m (£683.1m) in 2011 and said it saw profit falling to a mid-three-digit million euro figure this year, in line with a €580m consensus.

Its adjusted operating margin narrowed by 1.3 percentage points to 3.4 per cent in 2011, which finance chief Stephan Gemkow said Lufthansa was “not happy with”.

“It is going to be hard work, because in order to structurally and sustainably strengthen the group’s earnings power, we are going to have to rebuild the group itself and we have to be willing to make some unpopular decisions,” chief executive Christoph Franz said.

To improve profits, Lufthansa plans to cut costs by €1.5bn by the end of 2014, is selling loss-making British unit BMI and now plans to inject as much as €140m of fresh equity capital into Austrian Airlines.

Lufthansa has not said what specific measures it plans or how many jobs may be cut, but said it aims to pool purchasing volumes and slash administrative staff costs, among others.