Air France-KLM and Lufthansa's cost-cutting plan takes off as tough first quarter loss hits

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Deutsche Lufthansa AG and Air France-KLM are embarking on a cost-cutting drive after the European airlines suffered higher first-quarter losses in the wake of strike disruptions and restrained bookings caused by tensions in the Middle East. 

The two companies announced the steps as they reported earnings for the first three months. Lufthansa said it will freeze projects and review hiring in some areas at its namesake airline brand, while Air France KLM said it’s putting a hold on adding support staff. Both airlines reported widening deficits for the quarter. 

The first months of the year, while traditionally the weakest period for airlines, were particularly tough for Europe’s biggest airlines after strikes at Lufthansa brought operations to a standstill on numerous occasions and Air France also had to contend with labor disruptions as well as weaker cargo demand. At the same time, the companies said things are looking up into the latter half of the year, with promising bookings into the busy summer period and the risk of strikes now averted after reaching agreements with labor unions.

“We are now leaving the first quarter behind us, which was mainly impacted by strikes, and are at a turning point,” Chief Executive Officer Carsten Spohr said in a statement, adding that the company sees strong demand and that planes “remain well filled throughout.”

Shares of Lufthansa were little changed in Frankfurt trading at the open. The company had already cautioned in mid-April that it would remain behind its earnings goals for the year because of the strikes, which led to €350 million in costs in the first quarter alone. 

Air France-KLM dropped as much as 4.7% in Paris trading.

Strikes Averted

The Franco-Dutch group’s operating loss widened to €489 million from €306 million in the same period last year. At Lufthansa, the total adjusted operating loss jumped to €849 million from a €273 million deficit a year earlier. The company also back its capacity forecast for 2024, estimating 92% of pre-pandemic levels, two percentage points below its previous goal.

Although Lufthansa has settled the labor disputes with new wage agreements, the walkouts will cost another €100 million in the second quarter as sales were hurt from reluctance by customers to book, the airline said. Consequently, operating profit will be lower in the second quarter compared to a year earlier, before increasing again during the second half.

Lufthansa said sales rose 5% to €7.39 billion, while Air France-KLM said bookings for the summer were looking strong and that no air traffic control strikes were expected ahead of the Paris Olympic Games in July.

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