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Lufthansa Faces Trouble on Several Fronts

The German national carrier has learned that it faces censure from the Cartel Office, addign to the threat of a strike at its City Line unit.

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Profit descending slowly

On the day that it confirmed that it incurred a full-year a loss as a result of the gravest crisis that the aviation industry has seen in years, Lufthansa AG learned that if faces censure from the Cartel Office to add to the threat of a strike at its City Line unit.

Germany's national carrier on Tuesday said that it now expects its final figures for full-year 2001 to show a net loss. "The year 2001 will end with a negative result, there is no doubt," Stefan Lauer, Lufthansa's board member with responsibility for human resources, told reporters in Shanghai.

But Lauer said cost-cutting meant that Lufthansa was now over the worst of the crisis, and it could expect to post a small profit in full-year 2002.

Meanwhile, the Federal Cartel Office in Bonn said it had warned Lufthansa of concerns arising from its pricing policy on services between Frankfurt and Berlin.

The antitrust authority is fears that Lufthansa is using cut-throat pricing on this key domestic route to force its competitor Germania off the market, and that it will raise its prices once this goal has been achieved.

In November, Berlin-based low-fairs airline Germania introduced a service between Berlin's Tegel airport and Frankfurt at a price of 99 euros each way. Lufthansa immediately responded by cutting its price for the same route to 100 euros.

According to Cartel Office calculations, Lufthansa cannot possibly hope to cover its costs per passenger with its new price, which represents a cut of 60 percent from its previous tariff. It noted that Berlin-Frankfurt had been the only domestic service on which Lufthansa had cut its fairs. It threatened to ban Lufthansa from offering the low fare if it was unable to allay its suspicions.

"If the Cartel Office cannot or will not understand our position, we will have to use all legal means that are at our disposal," said Lufthansa's marketing chief Ralf Teckentrup. "It cannot be the job of the Cartel Office to step in as a regulatory authority and tell us what should be the exact price for a single service."

Handelsblatt had in its Tuesday edition reported that City Line, Lufthansa's regional subsidiary, faced a pilots strike following the breakdown of pay talks with trade union VC Cockpit.

On Tuesday, the trade union confirmed that steps had already been taken to prepare for a strike ballot. If 70 percent of the members vote in favor, the strike will go ahead, said the union's wages expert, Rüdiger Fach, who also confirmed that the closing date for the return of ballot papers is Feb. 15, as reported in Tuesday's Handelsblatt.

City Line's management board negotiates the pay agreements independently from the parent group. So whereas pilots at the parent airline won wage increases of around 12 percent in May last year following several wild-cat strikes, pilots at City Line have so far failed to negotiate a raise. For more than six months they have been demanding a wage increase and a share of the profits generated in the boom year 2000.

City Line operates Lufthansa's domestic and medium-haul flights. In 2001, it carried around 6 million passengers and generated sales totalling just over 1 billion euros.

In an article written for the latest issue of Lufthanseat, Lufthansa's in-house journal, City Line's managing director, Karl-Heinz Köpfle, warns that the final figures for 2001 will show the unit doing no more than break even. He said passenger demand had fallen by up to 20 percent, and in this situation, he urged the pilots to show flexibility on wages.

A City Line spokeswoman said that talks would be continuing and the unit expects an agreement with Cockpit by the start of February.

Meanwhile, ground and cabin staff at City Line will be following the progress of the pilots' dispute with interest. Ilona Ritter, chief negotiator for services union Verdi, told Handelsblatt any pay accord forged with pilots would be taken into account in formulating the pay demand for ground and cabin staff.

In Frankfurt, Lufthansa shares lost as much as 3.5 percent intraday before closing down 2.12 percent at 17.10 euros.
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