Deutsche Lufthansa AG said on Thursday it plans to maintain its cost-cutting efforts in order to better cope with increasing competition, even if the move triggers additional strikes.
The German airline said pilot and security personnel strikes reduced its full-year operating profit by €232 million, including €62 million in December, to €954 million or 37% better than 2013.
Through the past year Lufthansa had to deal with 10 strikes, triggered by the companys move the modify wage agreements and retirement plans and further expand its move into low-cost flights. The company plans to redirect the majority clients towards its Eurowings unit, which generates 40% less costs, and its crews, which have different collective labor agreements compared to the companys employees at Lufthansa and Germanwings.
The airline, which reduced its financial target twice last year, stated that it will continue with restructuring efforts even at the expense of more pilot strikes as Lufthansa faces severe competition in Europe. Additionally, the company has previously said that it would only invest in its core brands, Lufthansa and Germanwings, if it gets significant concessions from the pilot unions.
Last month the company unveiled a plan to expand its main fleet by around 27 aircraft by 2020, which would reflect in the creation of 500 pilot and 1 300 cabin crew jobs. Before the move, however, Lufthansa wants to reach an agreement with its employees that would substantially cut its operating costs.
Lufthansa flight paths in Europe are being slowly taken over by low-cost carries and Persian Gulf rivals, while the company faces pressure on long-haul flights from companies like Emirates and Turkish airlines.
The company also said that the €2.5 billion of profit enhancement, brought by its SCORE restructuring program between 2012 and 2014, has been nearly nullified by lower ticket prices and cost inflation.
However, the company projected to deliver more than €1.5 billion adjusted earnings before interest and taxes and operating profit in the year ahead. In 2014 Lufthansa reported adjusted EBIT of €1.2 billion.
All-in-all Lufthansa reported a net income of €55 million for the period versus €313 million in 2013. The company contributed the substantial decline to a reduction on the value of its JetBlue convertible bonds and the sale of a division of Lufthansa Systems, an IT service provider for the aviation industry.
“We simply have to further increase our operating profit. For this we need competitive structures; and that’s what we continue to consistently work on,” said Chief Executive Carsten Spohr.
Lufthansa gained 2.88% on Wednesday and closed at €13.42 in Frankfurt. On Thursday the stock dropped 2.09% to €13.13 at 09:10 GMT, marking a one-year decrease of 26.77%. The company is valued at €6.11 billion.
According to the Financial Times, the 25 analysts offering 12-month price targets for Lufthansa have a median target of €14.00, with a high estimate of €20.00 and a low estimate of €9.60. The median estimate represents a 4.36% increase from the last closing price.
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