Lufthansa tells Austrian to up cost-cutting efforts

VIENNA (Reuters): Germany’s largest airline Lufthansa AG has ordered more cost cuts at loss-making Austrian Airlines as a precondition for supporting the unit’s plans to upgrade its fleet.

Austrian wants to replace its medium-haul fleet of 11 Boeing 737 aircraft with up to seven Airbus A319 or A320 jets, but said it could not finance the plans from its own resources.

“Owner Lufthansa is prepared to support Austrian Airlines in this but only under the precondition that Austrian has significantly improved its cost structure first,” the Vienna-based airline said in a statement last week.

New Austrian Airlines boss Jaan Albrecht said the unit would reduce staff costs and cut some routes as it seeks savings of around 200 million euros ($255 million) in 2012, when it finally hopes to make a profit.

Austrian made an operating loss of 66 million euros in 2010 and will likely report a similar amount for 2011, Albrecht told a press conference in the Austrian capital of Vienna.

“We have to work together to resolve our structural problems,” Albrecht said, referring to the need for lower costs at the airline’s Vienna base.

Faced with waning consumer confidence, high fuel prices and the costs of a new European Union emissions trading scheme, Europe’s airlines are cutting the number of seats on offer, scaling back investments and reducing staff costs as they seek to protect dwindling profits.

Lufthansa has taken a tough stance on underperforming operations of late, having closed its Italian unit and signed a deal to sell loss-making UK airline bmi to British Airways owner IAG.