July 30 (Bloomberg) -- Deutsche Lufthansa AG, Europe's second-biggest airline, is increasing efforts to cut spending this year to help counter rising fuel costs that are threatening earnings at its main passenger business.

The passenger unit, Lufthansa's biggest, will fail to match last year's results if oil prices remain at record levels, Chief Financial Officer Stephan Gemkow said today. The Cologne, Germany-based carrier is seeking 250 million euros ($389 million) in savings by expanding a hiring freeze and through measures such as curbing information-technology spending.

Record oil prices have made jet fuel the airline industry's single biggest expense and pushed at least 24 carriers to cease flying or file for bankruptcy this year, according to the International Air Transport Association. Jet-fuel prices in northwest Europe have risen 40 percent this year. Lufthansa has faced strikes this month by pilots and ground workers in Germany, complicating efforts to reduce spending.

``Our company has the great opportunity to emerge relatively stronger from the increasingly difficult market and competition situation that we find ourselves in,'' Chief Executive Officer Wolfgang Mayrhuber said in a statement today. ``We have laid the foundations and will not jeopardize our future.''

Lufthansa's planned cost cuts were raised from a June target of 100 million euros to 150 million euros, Gemkow said today on a conference call with reporters. Lufthansa is expanding a hiring freeze for administrative staff to include other employees such as ground personnel, he added.

`Very Careful'

The company is ``very careful'' about the business outlook for 2009, Gemkow told reporters.

The airline anticipates spending 5.56 billion euros on kerosene this year, 44 percent more than in 2007, Gemkow said.

Lufthansa fell 22 cents, or 1.5 percent, to 14.88 euros in Frankfurt electronic trading.

Lufthansa said second-quarter operating profit rose 15 percent to 517 million euros as the takeover of the Swiss International Air Lines Ltd. unit added to earnings and the carrier raised fuel surcharges. The figure beat the 506 million- euro median estimate of 11 analysts surveyed by Bloomberg. Lufthansa released first-half earnings late yesterday.

The airline stuck to a target to ``follow up on'' last year's record operating profit of 1.38 billion euros, while adding that lasting fuel-price increases, a sustained decline in the global economy and the ``yet unforeseeable effects'' of ongoing labor disputes in Germany pose risks to its outlook.

Risks to Outlook

Lufthansa faces slowing economic activity in many regions and the carrier will reduce growth in seating capacity to just over 6 percent from more than 7 percent, Gemkow said.

The airline canceled 78 flights today as catering workers and aircraft technicians continued their strike for a third day. The Ver.di labor union is seeking a 9.8 percent raise for Lufthansa's 50,000 ground workers and flight crews, compared with the airline's offer of 6.7 percent in two steps. The walkout coincides with a separate dispute with pilots, whose strike last week forced the German carrier to cancel more than 900 flights.

``We must stand firm'' on the wage talks, Gemkow said.

Lufthansa will consider a potential partnership with Austrian Airlines Group, Austria's biggest airline, when the issue is ``acute,'' Gemkow said. ``We're monitoring this.''

Austrian Airlines

Vienna-based Austrian Airlines said July 28 that a report by Boston Consulting Group recommended the company be sold to another airline. Austrian Airlines chairman Peter Michaelis, head of Austria's state-assets agency OIAG, the carrier's biggest shareholder, has said he will seek approval to sell the country's 43 percent stake in the airline at a Cabinet meeting on Aug. 12.

Gemkow said Lufthansa doesn't foresee the possibility of bidding for Iberia Lineas Aereas de Espana SA after British Airways Plc, Europe's third-biggest carrier, said yesterday it plans to merge with the Spanish airline. Alitalia SpA, the unprofitable state-controlled carrier Italy is seeking to sell, is interesting as a potential acquisition target, among ``many other companies,'' he said.

Lufthansa's second-quarter net income fell to 345 million euros from 438 million euros a year earlier. Earnings in the 2007 period were boosted by a 71 million-euro gain after WAM Acquisition SA, a venture that owns the Amadeus Global Travel Distribution reservation service, bought some of the German airline's stake in the partnership.

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

Last Updated: July 30, 2008 13:05 EDT