Lufthansa has announced plans to cut several thousand jobs as part of a comprehensive restructuring effort aimed at reducing costs and restoring profitability. The airline intends to reduce its administrative workforce by approximately 20%, which translates to a significant reduction from its current base of about 15,000 office employees. This decision comes in the wake of two profit warnings in 2024 and a nearly 20% decline in earnings last year.
Chief Executive Carsten Spohr communicated the planned cuts to employees during a meeting on Friday, emphasizing that the airline must streamline its operations to remain competitive and invest in future growth. In reaction to the anticipated job cuts, shares of Lufthansa rose by 3.4% on Friday, reaching their highest level in over three weeks.
Investor and Analyst Pressure
Investors and analysts have long criticized Lufthansa for its inability to effectively manage expenses and boost core operations. Despite operating fewer aircraft and conducting less flight activity than in 2019, the airline’s workforce has increased by 7%. This discrepancy has led to heightened operational costs and diminished competitiveness.
Research from Bernstein highlights that the airline has struggled to reassure markets about its turnaround strategy. Lufthansa has missed its target of achieving an 8% operating margin by 2025, intensifying calls for more decisive action. The upcoming Capital Markets Day, the first in six years, will see management present its “Matrix Next Level” restructuring program, designed to consolidate core operations such as sales and network planning in Frankfurt.
Union Opposition and Labour Challenges
The announcement of job cuts has prompted immediate backlash from labor unions. The Verdi union, representing a segment of Lufthansa’s workforce, indicated it would leverage upcoming collective bargaining sessions to contest any significant workforce reductions. Union representatives argue that the proposed cuts are unacceptable in their current form, signaling potential for further conflict.
Labour disputes continue to pose substantial challenges for Lufthansa, as pilots remain engaged in a protracted disagreement over pension arrangements, raising the specter of additional strike actions. Aviation experts have noted that while centralizing management functions could enhance efficiency, executing these reductions in a socially responsible manner will be complex.
Competitive Pressures in Europe
Lufthansa faces increasing competition from European rivals such as Air France-KLM and International Airlines Group, both of which have outperformed the German airline in terms of profitability. The widening margin gap has escalated pressure on Lufthansa to expedite its restructuring initiatives and enhance cost efficiency. The airline is optimistic that new business operations, including partnerships with Discover and City Airlines, will provide greater staffing flexibility and lower overall costs.
Despite these efforts, convincing investors and analysts of tangible progress remains a considerable challenge. Lufthansa is expected to outline its strategy and provide an updated outlook to shareholders during its presentation on Monday, March 4, 2024.
As Lufthansa navigates this pivotal moment, the implications of its restructuring efforts will be closely monitored by investors, employees, and industry observers alike.
