Lufthansa Stands Firm As Strikes Loom

August 29, 2012

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Lufthansa stuck to plans to limit pay rises and switch some staff to less generous contracts, as cabin crews prepared for strikes from Thursday that could disrupt hundreds of flights and cost the company millions of euros.

German trade union UFO, which represents around two thirds of Lufthansa's 19,000 cabin crew, on Wednesday said it would give only a few hours' notice of strikes, making it difficult for Lufthansa to ask courts to block the action.

That prompted a 2.4 percent fall in Lufthansa shares on Wednesday, the biggest drop on Germany's index of leading shares.

UFO head Nicoley Baublies told a German radio station that the first wave of strikes would cover only certain airports. He ruled out any action on Wednesday and said UFO would announce in the evening whether strikes would take place on Thursday.

Like other European flag carriers such as Air France-KLM, Lufthansa is fighting to reduce costs amid rising fuel prices and tough competition from low-cost and Gulf carriers. It needs to generate more profit to pay for the EUR€17 billion (USD$21 billion) of more fuel-efficient aircraft it has on order.

The company wants to outsource staff, use cabin crew on temporary contracts and switch its employees to less generous contracts by combining its Germanwings low cost unit with its point-to-point flights within Europe - moves the union opposes.

The union wants a 5 percent pay rise after three years of pay freezes and guarantees against outsourcing and the use of temporary workers. Lufthansa has offered a 3.6 percent pay rise, but wants staff to work more hours in exchange.

Lufthansa expects two-thirds of a EUR€1.5 billion savings plan to come from its German passenger airlines division and has already forced pay cuts on pilots at Austrian Airlines, by saying they could take either a new, less generous contract or leave.

Analysts said the company is likely to take a hard line in Germany too.

"The example of Austrian Airlines shows how tough management can be in negotiations, and while they can't legally use such measures in Germany as they did with the staff there, I would expect them to take a similarly hard stance," Equinet analyst Jochen Rothenbacher said.

DZ Bank analyst Robert Czerwensky said he expected a lengthy dispute. "A long-lasting battle with the union is a good signal to the market that Lufthansa is keen to fight for cost improvements and not willing to give up easily"

Stefan Lauer, Lufthansa board member responsible for staffing, said last week that it wasn't just Lufthansa that had to improve its structures, but the airline sector as whole, describing it as "painful, but necessary".

A Lufthansa spokesman said the company had no further comment on the strikes. The airline said on Tuesday cabin crew must play their part in cost-cutting measures.

Lufthansa estimates a nationwide strike on a busy day would cost it millions of euros.

Equinet's Rothenbacher put the worst-case scenario - no flights at all - as a loss to operating profit of up to EUR€50 million a day but said it would more likely be around EUR€5 million a day if flight cancellations were kept to a few hundred.

Talks between Lufthansa and the union, which have been running for 13 months, broke down in the early hours of Tuesday morning.