April 25 (Bloomberg) -- Deutsche Lufthansa AG, Europe's second-biggest carrier, said it aims to cut costs this year to help cope with soaring fuel prices and slowing economic growth.

Lufthansa will probably spend 5.26 billion euros ($8.2 billion) on fuel in 2008, up 36 percent from last year, the company said today in an earnings presentation. That's more than a March forecast of 4.9 billion euros. Passenger traffic grew the least in 1 1/2 years last month and seat occupancy declined.

``The challenges posed by increased prices, particularly the price of fuel, as well as uncertain economic development, will increase for Lufthansa,'' the Cologne, Germany-based airline said today on its Web site. ``For this reason, all of the group companies are keeping their focus on cost management.''

Chief Executive Officer Wolfgang Mayrhuber has sought to protect earnings from rising fuel costs with hedging measures and ticket surcharges. Lufthansa yesterday posted net income of 57 million euros in the first three months, its smallest quarterly profit in two years. The figure was higher than analysts had estimated as the main passenger unit returned to profit.

Lufthansa rose 71 cents, or 4.1 percent, to 18.08 euros in German trading. The stock has declined 0.8 percent this year, the second-best performance on the eight-member Bloomberg Europe Airlines Index, valuing the company at 8.28 billion euros.

Lufthansa today reiterated a goal of boosting operating profit this year, provided rising fuel costs can be compensated for and demand doesn't fall. Operating profit rose more than fivefold to 188 million euros in the first quarter, with all business segments showing improvements, the airline said today.

Kerosene Bill

Lufthansa spent 1.07 billion euros on fuel in the first quarter, up 42 percent from a year earlier, it said today. Fuel prices that rose more than 18 percent in three months, according to Bloomberg data, were partially offset by the weakening of the U.S. dollar, the carrier said, while hedging cut the kerosene bill by 131 million euros.

The company has hedged 83 percent of fuel needs for this year and 35 percent for 2009, Chief Financial Officer Stephan Gemkow said on a conference call with reporters.

Austrian Airlines Group said yesterday its first-quarter net loss widened due to higher fuel spending. Earnings worldwide will be 10 percent lower this year than previously forecast as oil prices rise and the U.S. economy slows, the International Air Transport Association said April 1. Carriers will earn net income of $4.5 billion, down from the $5 billion predicted Dec. 12, IATA said, cutting the outlook a third time in seven months.

Ticket Prices

Yields, or average air fares, slipped 2.2 percent in the first quarter. In Europe, the company's main market, yields slumped 7.4 percent from a year earlier. Lufthansa is ``optimistic'' about incoming bookings, Gemkow said in a Bloomberg Television interview today.

Lufthansa has sought to sustain earnings by imposing fuel surcharges on its ticket prices. The company levies a 77-euro fee on long-haul flights and 17 euros on European services. Price increases added 163 million euros to traffic revenue in the quarter, Gemkow said.

First-quarter net income was equal to 12 cents a share, down from or 1.21 euros a year earlier, when earnings were swollen by the sale of a stake in travel company Thomas Cook. Analysts had predicted net income of 38 million euros.

Sales rose 19 percent to 5.6 billion euros, boosted by a contribution of 730 million euros from Swiss International Air Lines Ltd., which was integrated from July last year.

Raising Capacity

Lufthansa flew 13 million passengers in the quarter, 5.5 percent more than a year earlier. Gemkow said today the company plans to offer about 7 percent more seating this year as it begins flights to cities such as Seattle and Nanjing, China. Including the Swiss International unit, capacity will be expanded by almost 8 percent, he said.

Lufthansa defines operating profit as or earnings excluding currency shifts, release of provisions, liability revaluations and book gains or losses.

Lufthansa in December decided against making a bid for Alitalia SpA, Italy's biggest airline, because of concern that a purchase of the unprofitable competitor would put the German carrier's investment-grade credit ratings at risk. Italy is now seeking fresh bids for Rome-based Alitalia after Air France KLM- Group, Europe's biggest airline, dropped an offer.

Lufthansa hasn't begun talks with Alitalia's management or the Italian government and its position on the carrier hasn't changed, Gemkow said today. ``I believe the developments of recent weeks have rather confirmed our position,'' he added.

Gemkow also said Lufthansa is ``determined'' to exercise an option allowing the carrier to purchase control of U.K. airline BMI. Lufthansa already owns 30 percent minus one share of the partner carrier, while BMI Chairman Michael Bishop holds 50 percent plus one share.

To contact the reporter on this story: Jann Bettinga in Frankfurt at jbettinga@bloomberg.net.

Last Updated: April 25, 2008 12:45 EDT