MARK PILLING LONDON

Lufthansa is sticking to its ambitious target of posting an operating profit for 2001 on a par with that of last year - provided it is able to reach an acceptable pay deal with its pilots.

However Lufthansa, which made an operating profit of €1 billion ($1.1 billion) last year and has been the most profitable European carrier for four years, has warned that uncertainties due to the economic slowdown in the US and the pilots dispute make it hard to give a reliable forecast.

Analysts believe its profits target is optimistic. Robin Horne of HSBC Securities sees a fall to c900 million, while Chris Avery of JPMorgan notes that a "great deal depends on the duration of the strikes", which the Vereinigung Cockpit pilots union began staging in early May. So far the 24-hour strikes it has called have not hurt the carrier too much, but will particularly damage premium traffic and accordingly yields if it becomes a protracted problem, says Avery. It is estimated that each day long strike costs the airline around €15 million.

Lufthansa says its first quarter operating results, which plummeted to €5 million compared to €94 million in 2000, were not a good indicator for predicting the likely outcome for the final year figures. The airline's revenue performed well, rising by 16.1% to €3 billion, but sharp fuel price rises and start up costs of e-business projects had a major impact.

Whatever the final outcome of the bitter dispute between Lufthansa and its pilots, there will be a significant extra labour cost affecting the final year result too. This could amount to €100 million over a year, says Horne.

In what is Lufthansa's worst industrial dispute in its history, the pilots have been demanding increases of around 30%, saying they want to make up ground lost after making pay concessions in the mid-1990s. As the airline alliances grow in stature it should come as no surprise that employees at alliance carriers are increasingly benchmarking their pay and conditions. It is hardly a coincidence that the Lufthansa pilots have pitched for a 30% increase after seeing their colleagues at fellow Star member United Airlines win a similar deal last year, says Avery. "It is clear that unionism has benefited from global alliances faster than shareholders," he says.

Source: Airline Business