Struggling to reduce costs, Lufthansa plans 4,000 job cuts

Lufthansa (LHAG.DE), will cut 4,000 administrative jobs by 2030 and set higher profitability targets, the German airline group said on Monday, as it seeks to boost efficiency through digitalisation and automation.

Shares in the company rose on the announcement, jumping 2 percent in early trade. By 1156 GMT they were up 1.3 percent at 7.85 euros.

Lufthansa has struggled to cut costs and pursue growth as it has dealt with labour challenges in recent years. It issued two profit warnings last year and dropped a target of reaching an operating margin of 8 percent that year.

“We definitely lag behind some of our competitors when it comes to financial performance,” Chief Executive Carsten Spohr said at the company’s capital markets day.

LUFTHANSA SEEKS TO REASSURE INVESTORS

The group said it had not abandoned the 8 percent target, though it has now been pushed back to later in the decade as part of new mid-term targets for 2028 and 2030.

Lufthansa is pursuing an ambitious group-wide turnaround programme announced last year. The capital markets day, the first company-wide one in six years, was designed to reassure investors that the programme is going as planned.

In particular, Lufthansa is looking to revive its “problem child” core airline as it struggles to clamp down on rising costs that have raised concerns among analysts and investors.

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Lufthansa now expects its adjusted operating margin to reach 8-10 ppercent from 2028, up from a previous goal of 8 percent, and adjusted free cash flow of more than 2.5 billion euros ($2.9 billion) a year, it said at Monday’s event.

Reuters reported last week that Lufthansa planned to cut about 20 percent of its non-operational staff.

The reductions will be made mainly in Germany and in consultation with social partners, the company said, where the airline group has struggled most with moderating costs.

PILOTS’ UNION VOTING ON STRIKE ACTION

Verdi, a union representing Lufthansa employees including ground handling staff, criticised the job cuts, saying stricter European environmental taxes and politicians’ decision to maintain higher taxes were piling on pressure to cut costs.

Lufthansa’s pilots union will wrap up voting on Tuesday on whether or not to strike over changes to pensions.

Company executives have threatened to move more jobs to newer and cheaper subsidiaries within the group, such as City Airlines and Discover.

Lufthansa has said repeatedly that cost management is far easier at its other bases, such as Rome, where Lufthansa’s minority-owned Italian carrier ITA Airways is based.

The group plans to add more than 230 new aircraft by 2030 and deepen cooperation among its airlines to improve returns.

That integration means it can invest more heavily in newer, more profitable subsidiaries and move resources away from cost-heavy parts of the company if needed, executives told Reuters.