FRANKFURT (Reuters) - More savings need to be made at Lufthansa’s (LHAG.DE) main airline business to prevent tough competition on fares and rising external costs from driving it into “a dangerous red zone,” according to management at Germany’s biggest airline.
Average yields — a measure of ticket pricing — fell by more than 3 percent in 2014 and cost cuts within the group were nowhere near enough to compensate, Lufthansa board members Karl Ulrich Garnadt and Bettina Volkens said in a Feb. 5 letter to staff seen by Reuters on Friday.
In addition, staffing costs look set to increase, and the group is facing other rising costs beyond its control such as airport fees and air traffic control charges.
“The bottom line is that these twin trends will take us into the dangerous red zone if we do not take action to correct them,” they wrote in the letter.
Lufthansa has undergone repeated cost-cutting programmes over recent years but costs at the airline remain high in comparison with low-cost rivals such as Ryanair (RYA.I) or easyJet (EZJ.L) and Middle East-based carriers including Emirates [EMIRA.UL].
“The competition knows our cost position and knows that this is an area where we are vulnerable ... Our cost level is now 30 to 40 per cent higher than that of our direct competitors such as easyJet or Turkish Airlines (THYAO.IS),” the executives wrote in the letter.
Under CEO Carsten Spohr, Lufthansa is planning to expand regional airline Eurowings into a budget carrier and has been negotiating with staff to reduce costs on some Lufthansa-operated routes that are popular mainly with price-sensitive tourists and not business travellers.
Plans to expand Eurowings have drawn criticism from pilots, who went on strike ten times in 2014 in a row over early retirement benefits and do not want to see pay and conditions being eroded.
“In the long term our staff costs cannot, of course, be substantially higher than those of our competitors. There is no easy answer to this,” the managers said.
The executives added there were no plans to lay off pilots and that rumours some 50 aircraft were to be withdrawn from Lufthansa German airlines — which include the Lufthansa, Germanwings and Eurowings brands — were false.
They said they would give more details of plans in a staff meeting on Feb 19.
The letter to staff was first reported by German magazine Spiegel.
Reporting by Peter Maushagen; Writing by Victoria Bryan; Editing by Kirsti Knolle and Mark Potter