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Lufthansa Says Cost Cuts are Permanent Plan Amid Profit Erosion

Deutsche Lufthansa AG, Europe’s second-largest airline, said wringing savings and efficiency gains from operations is a permanent challenge as higher costs continuously erode profit.

The carrier has to absorb an increase in annual expenses of about 2 percent every year, Chief Executive Officer Christoph Franz told reporters yesterday in Frankfurt, where Lufthansa is based. Among additional measures are shorter refueling time for aircraft, selling spare parts on Internet auction platforms and common check-in counters for different subsidiaries, he said.

“We always come up with new ideas, some small, some big.” the CEO said. “I don’t care much if a profit improvement comes from lower costs, changing corporate structures, or higher revenues. The key will be to get there in the end.”

Lufthansa is working on an efficiency program that seeks to lift operating profit to 2.65 billion euros ($3.66 billion) by the end of next year, more than three times the 697 million euros realised in 2013. A previous plan had sought an improvement of 1 billion euros and came in short at about 640 million euros.

Franz, who will leave at the end of this month to hand over to Carsten Spohr, has extended the program by a year, saying Lufthansa will have to make it part of a daily routine. Analysts surveyed by Bloomberg have factored in lower savings return, at an average forecast of 2.13 billion euros.

Lufthansa’s aircraft repair business said in March it must deepen cost cuts to achieve its savings goal as fixed expenses mount. The parent company has said it is evaluating new projects capable of adding as much as 300 million euros in extra profit.

Lufthansa said March 13 its efficiency program contributed 926 million euros to operating profit last year, and that it had identified measures capable of adding almost 2.1 billion euros this year and next to build in a buffer.

“The headwinds, also from competition by low-cost carriers, will persist, that’s what we have to prepare for,” Franz said.

Ryanair Holdings Plc Europe’s largest discount carrier, will open its fifth German base in Cologne in October, while EasyJet Plc wants to set up a base in Hamburg this year. Both cities are bases for Lufthansa’s budget Germanwings unit.

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