As part of their cost savings initiatives, Lufthansa indicated (in a letter from a board member) that it will halt fleet expansion until it meets its objective of cutting approximately 900 million Euro in cost cutting.

In this story being reported by Reuters, Cartsen Spohr was quoting as saying “We will not go to the Supervisory Board with the proposal of selecting and ordering a modern intercontinental fleet until the abovementioned measures begin to bear fruit” in a letter to staff.

I had spoken to someone at Lufthansa regarding this, and they confirmed that this announcement does not affect Lufthansa’s current program in place that replaces older aircraft with new ones, rather they are just not expanding capacity with the use of new aircraft at this point.

Additionally, the letter went on to suggest that Lufthansa will not add any capacity in 2012, and restrict capacity increases to 4% in 2013 and 2014. Also in the letter it stated that staff cost cuts and negotiations with airports to lower expenses would take place.

I don’t think this will affect Lufthansa’s current orders that are on the books, such as for the new 747-8i. I just would not expect Lufthansa to announce ANY new aircraft purchases until it feels confident that it is meeting cost cutting initiatives. I also think that a reduction in “staff costs” has to include the potential for lay-offs and early retirement incentives for Lufthansa employees.

The Reuters Article:

(Reuters) – Germany’s Lufthansa will halt fleet expansion over the next three years as part of plans to improve annual profits by over 1.5 billion euros ($2 billion), according to a letter sent by a board member.

Chief executive Christoph Franz has said the three-year cost-cutting programme is necessary to improve margins and finance investment in planes in the face of a weakening economy, high fuel costs and increased competition from low-cost carriers.

Lufthansa German Airlines, which does not include Swiss or Austrian Airlines, would account for 900 million euros of the targeted 1.5 billion improvements, board member Carsten Spohr said, with plans to cut staff costs and negotiate lower charges at airports.

“We will not go to the Supervisory Board with the proposal of selecting and ordering a modern intercontinental fleet until the abovementioned measures begin to bear fruit,” Spohr wrote in the letter to staff.

Spohr said in the letter that Lufthansa German Airlines would not increase the amount of seats available in 2012 and would restrict capacity growth to a maximum of 4 percent in 2013 and 2014.

Lufthansa had cut its expansion plans in March, saying it now expected to add only 2 percent more seats at its airlines, including Austrian Airlines, Swiss and Brussels Airlines. It already slashed its original 9 percent plan in October.

Lufthansa’s Roland Busch, responsible for finance and HR at the Passenger division, said on Thursday night at an event in Frankfurt that increasing fuels costs and airport fees meant Lufthansa had to keep introducing cost-cutting programmes.

“Despite all our efforts, it feels like we end up only reducing losses, instead of improving profits,” he said. ($1 = 0.7571 euros) (Reporting by Victoria Bryan; Editing by Gary Hill)

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