Lufthansa weighs new airline to cut costs as pilot talks stall

Deutsche Lufthansa AG has told pilots that it could launch a new airline to save on costs if negotiations on 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 leverage after months of talks that have failed to produce an agreement on pay, said the people, who asked not to be identified discussing confidential matters. A fresh operating certificate would enable the German company to dismiss pilots, cabin crew and ground staff working under the old structure, then offer to rehire them with less costly contracts.

Lufthansa, which required billions in state bailout money to survive the coronavirus pandemic, is seeking ways to boost profitability and help repay debts racked up during the crisis. 

There’s a long history of airlines creating lower-cost units to hire new staff on significantly lower pay than incumbents. British Airways, a subsidiary of IAG SA, is launching a new unit this summer based at London Gatwick airport, and paying staff less than the main airline.

Germany’s Sueddeutsche Zeitung reported earlier that Lufthansa is considering founding a new carrier to cut personnel costs, without saying where it got the information. A move by Lufthansa to establish a new carrier would likely spark an expensive strike by its powerful pilot union.

For years, Lufthansa has struggled with relatively high personnel costs, a consequence of Germany’s stringent labor laws and powerful unions. The company last year launched a new carrier, Eurowings Discover, that hired staff on significantly lower pay than they’d receive at the group’s other airlines.

Pilot pay has been a particular bugbear of the group’s management. Longstanding Lufthansa pilots can earn close to 300,000 euros ($340,260) per year, people familiar with pay and conditions at the carrier have said previously.