Lufthansa reins in profit expectations as strikes take toll

By Victoria Bryan BERLIN (Reuters) - Germany's Lufthansa , rocked by a fatal plane crash at the end of March and trying to end a long-running dispute with its pilots, struck a cautious tone on 2015 profit expectations despite reporting a smaller first quarter loss. Like Air France-KLM , which also reported a smaller first-quarter loss last week, Lufthansa is trying to lower costs to better compete with rivals from the Gulf and Turkey as well as low-cost carriers in Europe. But strikes by pilots, who oppose changes to retirement benefits and the expansion of low-cost services, will cost Lufthansa 100 million euros (£73.5 million) in lost profit and bookings in the first half of 2015. Lufthansa on Tuesday confirmed its target for 2015 adjusted earnings before interest and tax (EBIT) of more than 1.5 billion euros but said it was unlikely to be significantly higher than that due to the strikes and crash. "We are in need of an urgent solution, we cannot afford to burden our customers further," finance chief Simone Menne said. Lufthansa reported a better than expected adjusted EBIT loss of 167 million euros thanks to cheap oil but said its pension provisions had swelled to 10.2 billion euros due to low interest rates. Shares in the carrier dropped 2 percent, the biggest faller among leading German shares <.GDAXI>. IAG , the parent company of British Airways and Iberia, has cut costs and reported a profit for the first quarter. Budget carrier Ryanair on Tuesday reported a 16 percent rise in April passenger numbers. Lufthansa last week made a new mediation proposal to bring an end to the row with its pilots, who have yet to respond. "Lufthansa is not being nearly as aggressive as IAG when it comes to getting costs down," said Liberum analyst Gerald Khoo, who has a 'sell' rating on the stock. "It's not clear how Lufthansa gets from where it is now to where it needs to be in the future to deliver the returns needed to stay alive." GERMANWINGS CRASH The quarter at Lufthansa was overshadowed by the March 24 crash of a passenger jet operated by subsidiary Germanwings. Evidence indicates the co-pilot deliberately steered the plane into a French mountainside, killing all 150 onboard. The crash affected demand at Germanwings for a few days and then booking numbers recovered, Menne said. The crash will have no impact on the company's balance sheet, she added, as claims and other costs are being covered by the airline's insurers. While the euro, down more than 11 percent against the dollar in the first quarter, boosted Lufthansa's revenue, it is also reducing the benefit of cheap oil, which is priced in dollars. Lufthansa now sees a 2015 fuel bill of 6.2 billion euros, against an earlier estimate of 6 billion. (Editing by Noah Barkin and Mark Potter)