Lufthansa Rides the Fiscal Roller Coaster

As little as two weeks ago, the Lufthansa board of directors was all smiles.

The savings course announced by the German airline to offset the long-term damage done to the international airline industry by the Sept. 11 terrorist attacks had paid off. Lufthansa was in the black again, with a €718 million profit in 2002, and sales that rose €300 million to €17 billion. Chief Jürgen Weber praised the company's "flexibility" in responding to the crisis.

In the face of the deadly SARS virus in Asia, slumping worldwide economy and the Iraq war, it seems that flexibility will be needed once again. Lufthansa announced this week it will have a higher-than-awaited loss in the first three months of 2003. The company would not say how much, but analysts are gauging the figure as high as €300 million.

"Despite the fact Lufthansa returned to profitability in 2002, paid taxes and paid-off a substantial amount of its debt, we are now back for a roller coaster ride. Things are going downhill, and we'll have to adapt," chairman of the board Wolfgang Mayrhuber told an airline conference in Berlin this week.

The bad news centered around the capacity of Lufthansa planes and the company's air cargo branch. Lufthansa Cargo reported that both its transport capacity and the amount of cargo it shipped went down in the first three months, compared to the first three in 2002. And though the number of Lufthansa passenger increased over the first quarter of 2002, the number of airplanes filled to capacity didn't keep pace.

The airline is already making moves, whittling the working hours for ground personnel down to 36 hours a week and planning the same for flight attendants. Lufthansa has also confirmed it is in discussion with Cockpit, the union representing its round 4,000 pilots.

Lufthansa applies the gardening shears

"It's like mowing the lawn," explained Mayrhuber. "When you have an organization and the grass grows, you need to go at it with a lawnmower. Then you have situations like these, where a lawnmower is not enough and you need to go in with a cutting tool and streamline specific things."

The measures are being added on to a savings course that has already seen 55 planes grounded, vacations go unpaid and a hiring freeze. Lufthansa is not alone among European airlines.

Air France has cut its flight plan by 7 percent, British Airways has also trimmed flights over the North Atlantic down by 6 percent and is planning to reduce its capacity by 4 percent in May. The Dutch airline KLM has been especially hard-hit by the SARS virus. It has reduced capacity by 20 percent in the Middle East and the USA and by 5 percent in Europe.