Lufthansa, Air France-KLM to cut costs after tough first quarter
Two of Europe’s top airline groups, Lufthansa and Air France-KLM announced cost cuts on Tuesday after labour disputes and high customer payouts linked to flight disruptions deepened first-quarter losses.
The first quarter is often a loss-making one for airlines, with fewer bookings, but this year’s was worse than expected for the two groups due to expensive strike action and disruptions due to capacity limits and cancellations.
Air France-KLM said it would tighten spending for the rest of the year, including a freeze on hiring support staff.
Germany’s Lufthansa said it would cut operating costs, pause new projects and increase scrutiny of additional administrative staffing at its core brand Lufthansa Airlines to stem heavy losses from strikes.
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The carrier spent 350 million euros ($374.8 million) in the first three months of this year after agreeing higher wages for staff and dealing with costs from cancellations. Air France-KLM meanwhile had to pay 50 million euros in compensation mostly to customers of its Dutch carrier.
Earlier this month, Lufthansa slashed its full-year outlook following a wave of costly industrial action, sending its shares down.
On Tuesday, it said earnings in the second quarter would be below the prior-year level as customers were reluctant to book in April and May.
The results show airlines are still grappling with higher costs, exacerbated by disruptions and cancellations tied to limited capacity and geopolitical turbulence, despite a recovery in travel demand since COVID-19 lockdowns.
“Disruptions may dissuade some passengers from booking on that airline, preferring a lower-risk approach of using airlines and airports with more stable labour relations,” said Bernstein analyst Alex Irving in a note, referring to Lufthansa.
Air France-KLM maintained its 2024 outlook, but warned that costs would still be up 2% year-on-year in its second quarter, Reuters reported.
“As anticipated, our operating income was impacted by disruption costs and a slower cargo business. We nonetheless remain confident in our ability to achieve our 2024 unit cost outlook,” Air France-KLM CEO Ben Smith said in a statement.
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