PARIS — Faced with soaring fuel costs and escalating competition on its European routes, Lufthansa said Thursday that it would eliminate 3,500 administrative jobs as part of a wide-ranging effort to improve its profitability by €1.5 billion over the next three years.
The move marked the first time since the economic crisis in 2008 that the German flag carrier had announced significant staff reductions and came as the airline announced that its net loss for the first three months of 2012 had narrowed by nearly 22 percent, to €379 million, or $498 million, from €507 million a year earlier.
“We can only safeguard jobs for the long term and create new openings if we reorganize the administrative functions and accept job losses now,” Christoph Franz, Lufthansa’s chief executive, said in a statement in which the airline added that it would aim to achieve the cuts — equivalent to 3 percent of its 117,000-strong work force — via “socially responsible measures” like attrition and voluntary early retirements.
The reductions announced Thursday — significantly less than the 5,000 that had been floated in recent German media reports — were just the latest in a wave of belt-tightening taking place at network carriers as they struggle to compete with leaner and nimbler rivals like Ryanair, EasyJet and Air Berlin in Europe and with rapidly expanding Middle East carriers like Emirates and Etihad on long-distance routes.
Air France-KLM began a similar effort in January, announcing a pay freeze for its French employees as part of a €1 billion package of cost cuts. The French-Dutch carrier is also widely expected to announce significant job cuts later this year. Meanwhile, British Airways, which last month acquired Lufthansa’s money-losing BMI unit, has said that as many as 1,200 jobs could go as a result of the integration of the British regional carrier into its Heathrow-based operations.
While there have been recent indications that air traffic demand in Europe has started to rebound, despite the region’s weak economy, the International Air Transport Association predicted in March that European carriers were likely to report collective losses this year of at least $600 million, in a best-case scenario, and of as much as $1.9 billion if oil prices were to spike to as high as $150 per barrel from around $105 currently.
“The interesting backdrop to all of this is that traffic growth in Europe has been surprisingly strong, while yields” — the price paid by one passenger to fly one mile — “are still extremely weak,” said Nick Cunningham, an analyst at Agency Partners in London.
While demand for air travel is holding up, travelers have become increasingly price sensitive, Mr. Cunningham said. And while network carriers are scrambling to reduce seat capacity, pressure remains strong to keep ticket prices competitive with their rivals. “In that scenario, even with rising traffic, everybody loses money. So the response can only be aggressive cost reductions,” Mr. Cunningham said.
Mr. Franz said Thursday that rising fuel costs and recent aviation tax increases in Germany and Austria — as well as the cost of complying with the European Union’s carbon-emissions trading program, which applies to airlines as of this year — had lowered Lufthansa’s operating profit in the first quarter, even as revenues increased by 5.6 percent, to €6.6 billion from €6.3 billion in the year-earlier period.
The cost-savings program “is our own response to these additional burdens,” he said. “It will safeguard Lufthansa’s position” and help the German carrier to maintain its global competitive position over the long term.
Meanwhile, in a sign that fierce competition and high fuel costs are not only hitting large carriers, a Danish budget carrier on Thursday became the latest of the region’s smaller players to cease operations this year.
Cimber Sterling, based in Sonderberg, declared bankruptcy after its owners withdrew financial support after several months of trying to turn the company’s finances around. The airline, a small rival to the Scandinavian airline SAS, Finnair and Norwegian Air Shuttle, had recently shut down several routes to Southern Europe to focus on the domestic market.
Cimber’s bankruptcy followed the failure of several other small airlines this year, including Czech Connect Airlines, based in Brno, the Italian carrier Air Alps and Cirrus Airlines of Germany. Two state-owned airlines, Spanair in Spain and Malev in Hungary, have also ceased operations after years of losses.
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