Following crash tragedy, Lufthansa seeks new deal with pilots

At Lufthansa's annual shareholder meeting in Hamburg on Wednesday, 150 candles burnt in the hallway in memory of the passengers and crew who were killed when one of its passenger jets crashed last month.

Carsten Spohr, chief executive, had the delicate task of expressing sorrow about the loss of the Germanwings jet and all 150 people on board in the French Alps, while also addressing a protracted labour dispute at Lufthansa and a deteriorating competitive environment.

Lufthansa was supposed to mark its 60th anniversary this month but the celebrations were cancelled in the wake of the crash.

Following a minute's silence for the victims at the annual meeting, Mr Spohr said the tragedy - co-pilot Andreas Lubitz is suspected by prosecutors of deliberately flying the jet into a mountain - had "hit us where it hurts most".

"The scars it has left on our company will remain forever," he added.

The catastrophe had put a turbulent year - marked by pilot strikes and profit warnings that contributed to a near 30 per cent fall in Lufthansa's share price - in an "entirely different perspective", said Mr Spohr.

The crash has helped bring Lufthansa employees together and so far there has been no repeat of the pilot strikes that caused the airline to cancel 8,600 flights last year at a cost of €232m.

Seeking to open a new chapter in relations with pilots, Mr Spohr came to the annual meeting with an olive branch - the offer of arbitration on all outstanding contractual matters, including wages and pension issues.

Arbitration would guarantee there are no further strikes in the coming months because the pilots would not be permitted to walk off the job once a mediation process is under way.

Although last year's pilot strikes were ostensibly about early retirement benefits, their root cause is Mr Spohr's strategy to expand low-cost services on short and long-haul routes under the little-known Eurowings brand. Eurowings has lower costs than Lufthansa's mainline business, which has onerous collective bargaining agreements with trade unions on pay and conditions.

However, Mr Spohr's new strategy would be excluded from any arbitration with the pilots, which might explain why the Vereinigung Cockpit union responded cautiously to his proposal on Wednesday, saying it required further details.

Mr Spohr is determined to push ahead with the low-cost strategy and he said the airline could not afford to stand still - "not for weeks, not for days and not even for hours".

"In order to be able to finance the planned investments in the future we will need significantly more financial stability," he said.

Mr Spohr's crash-related crisis management won praise from shareholders on Wednesday but some voiced frustration with Lufthansa's pilots for striking at a time when competition was increasing and the company's balance sheet was deteriorating.

Mark Tuengler, a representative of the DSW shareholder association, called on the two pilot representatives on Lufthansa's supervisory board to "ensure there are no more strikes" or else to step down from their duties.

For the second time in three years, Lufthansa investors will not receive a dividend. The company in February reported a €732m net loss for last year under German accounting rules, in part because lower interest rates have caused its pension liabilities to balloon.

Mr Spohr told investors there were no plans to raise fresh capital but he said business conditions had "not gotten any easier" during the first quarter.

Lufthansa expects about €100m in costs and lost bookings related to the pilot strikes in the first half of 2015, but is sticking to its forecast to generate more than €1.5bn in adjusted operating profit this year.

Mr Spohr hopes the new low-cost Eurowings services will allow the airline to grow despite tough competition from Ryanair and easyJet in Europe and the Gulf airlines led by Emirates on routes to Asia.

But some shareholders expressed scepticism that Mr Spohr's strategy would suffice to improve Lufthansa's profitability.

Ingo Speich, a portfolio manager at Union Investment, said Lufthansa's cost structures remained "too high" and "uncompetitive", and suggested the airline might be better off focusing on profitable business routes, rather than trying to expand with a low-cost, long-haul service for tourists.

"Revenues and passenger numbers are not the problem, rather it's the missing profits," he said.

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