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Lufthansa sees cost cuts lifting 2010 oper profit

Deutsche Lufthansa said it expects its operating profit to improve this year as it cuts more costs and a fragile economic recovery starts to lift demand for air travel.

The German flagship carrier, which aims to cut costs at its main passenger airline by €1 billion by 2011, said on Thursday that it sees a sustainable recovery taking root in the second half of this year.

“As the previous year's yield basis will be very low from the second quarter onwards, we expect an earlier recovery. The first quarter will probably still be difficult,” BHF analyst Nils Machemehl said.

Airlines are still reeling from the aviation industry's worst year in decades, but the International Air Transport Association halved its forecast for total 2010 losses by global airlines to $2.8 billion as demand picks up.

Lufthansa published key 2009 earnings on March 2, saying its operating profit dropped by 90% to €130 million, the lowest level since 2003. That figure still beat the €31 million Thomson Reuters I/B/E/S estimate.

Its passenger airlines, which include unit Swiss and recently acquired Austrian Airlines, posted a 2009 operating loss of €8 million as companies cut travel budgets, moving more passengers to cheaper seats at the back of the plane.

Taking advantage of the downturn, budget carriers such as Ryanair and EasyJet as well as rivals in the Middle East and Asia have been snapping up lucrative business customers with lower-priced offers.

Lufthansa warned that European demand for business class tickets -- which are far more profitable for airlines than economy-class bookings -- may never return to pre-crisis levels.

“In European traffic it must be assumed that lasting, structural shifts in demand have taken place that will have a dampening effect on future volumes and pricing,” it said.

Lufthansa said it could not yet give a more precise outlook for 2010 group operating profit and warned that its recent acquisitions would still weigh on earnings this year.

Chief Executive Wolfgang Mayrhuber last year completed a shopping spree adding Brussels Airlines, Austrian Airlines and BMI to Lufthansa's stable of carriers to battle rivals Air France-KLM and British Airways for pole position in Europe.

Lufthansa said it sees a tangible improvement in demand for long-haul flights later this year, as long as “massive” capacity growth at some airlines such as some Gulf carriers without corresponding demand recovery does not distort the market.

Further weighing on earnings, a pilots' strike that led to more than 2,000 flight cancellations and a 7% decline in passenger volume at Lufthansa's main airline cost the carrier €48 million - €50 million, Mayrhuber said.

Rival British Airways is facing a possible strike by cabin crew after talks between the airline and labor unions broke down on Wednesday. The UK carrier wants three-quarters of its crew to accept a pay freeze this year, part-time working, and cuts in onboard crewing levels on certain long-haul flights. (Reuters)