April 2 (Bloomberg) -- Deutsche Lufthansa AG canceled thousands of flights at the start of a three-day strike by pilots that’s set to cause the worst disruption in its history amid a campaign to slash costs and stay competitive.
Some 3,315 services have been suspended through April 4, with 112 planes and more than 1,500 crew stuck abroad, according to Lufthansa, which has advised customers to rebook or switch to rail travel. The Cologne-based company is negotiating with about 5,400 pilots in the dispute over retirement benefits and aims to maintain about 500 flights using volunteer staff.
Europe’s second-largest carrier has endured waves of labor unrest among air crew, ground workers and flight attendants in recent years as it seeks to match the reduced cost base of Gulf rivals and British Airways owner IAG SA. That’s complicated the challenge facing incoming Chief Executive Officer Carsten Spohr, himself a reserve pilot, with Lufthansa putting the cost of this week’s walkout at about 50 million euros ($69 million).
“Lufthansa can’t afford to be left behind in cutting expenses if they want to remain in the top tier,” said John Strickland, director of JLS Consulting Ltd. in London. “The Gulf carriers already have lower costs and IAG has got its act together, with BA in clear profit and optimism about Iberia.”
Facing down pilots won’t be easy, he said, with IAG CEO Willie Walsh having pitched a deal to his own cockpit staff before taking on cabin crew in a more easily winnable dispute.
While Lufthansa has linked cost cutting plans to its ability to fund 300 new planes and create extra pilot jobs, unions have criticized it for announcing the reinstatement of dividend payments while continuing to pare employee benefits.
“Lufthansa makes good money, and the thing we’re negotiating is how much of that goes to investors, how much to satisfy the needs of the customer, and how much to employees,” Winfried Streicher, a pilot who is participating in the walkout, said today at Frankfurt airport. “The only thing we can do to make Lufthansa management move is go on strike.”
A Lufthansa pilot was previously able to retire from age 55, with the company paying so-called transitional benefits amounting to as much as 60 percent of the last salary until the legal retirement age of 63. Lufthansa canceled the contract at the end of last year after some pilots demanded the right to fly longer, and the labor union says the company may now unwind related provisions amounting to more than 1 billion euros.
“We wouldn’t go on strike if we were at the nitty gritty stage of these talks,” said Ilja Schulz, president of the pilot union. “There is a wide gap.”
While the strike is directed solely against the scrapping of transitional benefits, the pilots, who can earn 260,000 euros a year, are also seeking about 10 percent more pay after more than two years of failed negotiations. Lufthansa has said it offered 5.2 percent plus a one-time sum and dropped a demand to tie raises to financial performance for three years.
This week’s walkout affects Lufthansa’s main passenger airline, the Germanwings low-cost unit and cargo operations. About 100 “volunteer” pilots are pitching in, and the carrier’s regional arms and Swiss and Austrian units are not affected and will help move as many passengers as possible.
While normal operations won’t resume until 48 hours after the strike ends, Lufthansa aims to offer a stable schedule by midday on April 5. The company has secured 1,100 hotel beds for the night, though no passengers are stuck in Frankfurt yet.
The strike will cost 40 million euros to 50 million euros, with the exact amount unlikely to be known until after the action is over, Lufthansa spokeswoman Barbara Schaedler said today on Bloomberg Television. The carrier has offered terms “good enough to start serious negotiations” and aims to “pick up the conversation pretty soon,” she said.
Strickland said there’s a danger that German business passengers will switch to other airlines to guarantee their flights in the event of any further disruption, and could develop “a taste” for carriers such as Emirates of Dubai, the biggest airline on international routes.
The three-day strike comes after Lufthansa services were disrupted by a walkout by airport workers that grounded one in three flights on March 27. On Feb. 21, Fraport AG, operator of Lufthansa’s Frankfurt hub, shut down outbound passenger access after action by security staff congested checkpoints.
Lufthansa and Fraport saw traffic disrupted by a series of strikes at airports from Hamburg to Dusseldorf for months last year as a German union pushed for higher pay for security staff. The airline was also hit by walkouts involving air traffic controllers in various countries in January, and saw its cabin crew stage industrial action in September 2012.
Shares of Lufthansa were trading 0.8 percent higher at 19.55 euros as of 2:08 p.m. in Frankfurt, taking gains to 26 percent for the past 12 months. IAG, as International Consolidated Airlines Group SA is known, was priced up 2 percent and has added 66 percent to its value in the past year.
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