Low Fuel Prices Saved Lufthansa $234 Million In First Quarter, But Carrier Warns Of Costs Cuts To Meet Pension Obligations

Low fuel prices saved Lufthansa Group 209 million euros ($234 million) in the first three months of the year, helping the German air carrier report a first-quarter profit compared to the same period last year. But the company warned that it would require more cost-cutting to address mounting pension obligations.

“The costs of doing business in Germany remain our biggest challenge,” the company said in an earnings statement Tuesday. “These include the company retirement and transitional benefits that are the focus of negotiations with our collective bargaining partners.”

Europe’s third-largest carrier by passenger traffic was hit with 10 separate strikes from its pilots last year, prompting thousands of flight cancellations. The pilots want Lufthansa to maintain an early retirement plan, which pays them 60 percent of their salary between the age they retire and age 65, when public pensions kick in. But in 2011 the mandatory retirement age for airline pilots in the European Union was raised to 65, and Lufthansa claims the early retirement subsidy is no longer required. Pilots say they shouldn’t be required to work until 65.

Meanwhile, the pilots’ Vereinigung Cockpit union has also been jockeying for pay hikes while Lufthansa has been pushing cost cuts to help mitigate the 10.5 billion euros in pension obligations the airline faces. Labor costs increased 7 percent in the quarter, to 1.92 billion euros from 1.8 billion euros in the same quarter last year. Pilots strikes cost the carrier group more than 200 million euros in operating profit last year, the company has said.

The company says the March 24 crash of Germanwings Flight 9525 into a mountainside in France has largely affected advanced bookings for the Lufthansa subsidiary. But so far, Lufthansa Chief Financial Officer Simone Menne says, the crash has had "little impact on Lufthansa itself," the Wall Street Journal reported. Reuters reported last month that the crash, apparently a deliberate act by Germanwings co-pilot Andreas Lubitz, would cost $300 million in insurance claims.

The German carrier said its first-quarter net profit increased to 425 million euros from a loss of 252 million euros in the same period last year. Revenue increased 7.9 percent to 6.97 billion euros. The gains were helped by a nearly 14 percent drop in fuel costs, to 1.31 billion euros, a savings of 209 million euros. Lufthansa warned that its profit outlook for the year would be less than previously forecast.

Lufthansa shares dropped 1.87 percent to 12.56 euros Tuesday. The carrier group consists of Lufthansa, regional carrier Germanwings, Austrian Airlines, Swiss International Airlines and several other wholly owned or partly owned cargo carriers, passenger airlines, ground operators and flight crew trainers.