Lufthansa plans new airline to cut costs

Reuters

DEUTSCHE LUFTHANSA AG has told pilots it could launch a new airline to save costs if negotiations over a new union contract collapse, according to people familiar with the matter.

While it could lead to walkouts, such a move would be aimed at increasing Lufthansa’s clout after months of talks that failed to reach an agreement on wages, said the people, who asked not to be identified to discuss confidential matters. A new operating certificate would allow the German carrier to lay off pilots, cabin crew and ground staff working under the old structure, then offer to rehire them on cheaper contracts.

Lufthansa, which needed billions of dollars in government bailouts to survive the coronavirus pandemic, is looking for ways to boost profitability and help pay off debts accrued during the crisis.

Airlines have long created lower-cost units to hire new staff at significantly lower pay than incumbents. British Airways, a subsidiary of IAG SA, is launching a new unit based at London Gatwick airport this summer, and pays less for staff than the main airline.

Germany’s Sueddeutsche Zeitung reported earlier that Lufthansa was considering founding a new carrier to cut staffing costs, without saying where it got the information. A decision by Lufthansa to create a new carrier would likely trigger a costly strike by its powerful pilots’ union.

For years, Lufthansa has struggled with relatively high personnel costs, a consequence of Germany’s strict labor laws and strong unions. Last year the company launched a new carrier, Eurowings Discover, which hired staff at significantly lower wages than they would receive at other airlines in the group.

Driver compensation has been a pet peeve of group management. Long-time Lufthansa pilots can earn nearly €300,000 ($340,260) a year, people familiar with the carrier’s salaries and conditions have previously said. — Bloomberg

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