Lufthansa is set to announce significant job cuts, aiming to reduce its administrative workforce by approximately 20%. This decision comes as part of a broader restructuring initiative aimed at cutting costs and restoring profitability. Sources indicate that the airline plans to eliminate several thousand positions from its current workforce of about 15,000 office staff.
The impending announcement follows a challenging year for Lufthansa, which issued two profit warnings in 2024 and experienced a nearly 20% drop in profits last year, primarily due to aircraft delivery delays and multiple worker strikes. On March 1, 2024, Chief Executive Carsten Spohr informed employees about the impending changes, emphasizing the necessity for the airline to streamline operations to compete effectively and invest in future growth.
Investor Response and Market Pressure
Lufthansa’s shares rose by 3.4% on Friday, marking their highest level in over three weeks. This uptick reflects investor optimism regarding the planned cuts, which many believe are necessary for the airline to enhance efficiency and reduce costs. Investors have increasingly urged the company to adopt more decisive measures, particularly in light of its failure to achieve an 8% operating margin target by 2025.
Analysts from Bernstein highlighted a notable discrepancy within the airline’s workforce, indicating that despite operating fewer planes and flying less than in 2019, Lufthansa has increased its staff by 7%. This imbalance has raised operational costs and diminished the airline’s competitiveness in the market.
The upcoming Capital Markets Day, scheduled for March 4, 2024, will be the first in six years, and management is expected to unveil its “Matrix Next Level” restructuring program. This initiative aims to consolidate core operations, including sales and loyalty programs, in Frankfurt, thereby reducing the decision-making autonomy of subsidiaries such as Austrian Airlines, Swiss, and Brussels Airlines by 2026.
Union Opposition and Labour Challenges
The planned job reductions have already met resistance from labor unions. The Verdi union, representing some of Lufthansa’s staff, announced intentions to contest the proposed cuts during upcoming collective bargaining sessions. Union representatives assert that the current plan is unacceptable and call for more consideration of employee welfare.
Labour relations remain a pressing concern for Lufthansa, particularly as pilots are engaged in ongoing disputes regarding pensions. This situation raises the likelihood of further strike actions, complicating the airline’s restructuring efforts. Aviation experts suggest that while centralizing management functions may enhance efficiency, executing these reductions in a socially responsible manner poses significant challenges.
Lufthansa is also facing heightened competition from European rivals such as Air France-KLM and the International Airlines Group, both of which have outperformed the German airline in terms of profitability. The widening gap in profit margins has intensified pressure on Lufthansa to accelerate its restructuring process.
The company is exploring new business operations with entities like Discover and City Airlines, which are expected to provide greater staffing flexibility and reduce overall costs. Nevertheless, gaining the confidence of investors and analysts regarding the effectiveness of these changes remains a critical hurdle.
As Lufthansa prepares to outline its strategy and provide a future outlook to shareholders during its presentation on Monday, the airline faces the dual challenge of implementing necessary cuts while maintaining its competitive standing in a rapidly changing aviation landscape.