August 3, 2008

Lufthansa Strike Ends After Union Wage Deal

By Carter Dougherty

Lufthansa and its main union on Friday ended a five-day strike that disrupted air traffic in Germany and highlighted the pressure for higher wages in Europe amid lofty energy and food prices.

Lufthansa, the largest European airline after Air France-KLM, agreed to an immediate 5.1 percent pay increase for its 34,000 ground staff, retroactive to July 1, and another increase of 2.3 percent on July 1, 2009. Employees will also get a one-time payment, part of which will be linked with performance, of up to 2.4 percent of their annual salary.

The deal amounts to a pay increase at an annual rate of 4.2 percent over two years.

"It is certainly not painless for either side," Stefan Lauer, Lufthansa's chief negotiator, said in a statement Friday.

Ver.di, the main service-sector union in Germany, said the strike would end with the beginning of the early shift Saturday.

Like airlines around the world, Lufthansa is struggling with rising fuel prices and discontent among employees who are feeling the pain of higher energy and food prices.

Through a mix of strategies, including hedging its fuel costs with financial derivatives and passing along the higher fuel prices to its passengers, Lufthansa has protected its bottom line even as other carriers have gone bankrupt or faced dwindling margins. The company announced a 15 percent increase in operating profit this week.

But Wolfgang Mayrhuber, Lufthansa's chief executive, scoffed at giving the almost 10 percent wage increase that ver.di demanded, warning that such a step would endanger the company's stability.

Lauer said after the deal was struck that it was "imperative, however, that the increased costs be compensated by higher productivity."

As inflation has exploded across Europe, fears have risen that the Continent might become trapped in the kind of wage-price spiral that gripped much of the western world in the 1970s. Then, workers repeatedly demanded higher wages to compensate for rising prices, creating a circular pattern of inflation that was only broken by a deep recession in the early 1980s.

But so far Europe appears to be avoiding this pattern. In Germany, for example, prior settlements with government employees and chemical workers are barely keeping up with inflation.

"On average, if oil prices do not completely collapse, wages will about even out with inflation in Germany this year," said Andreas Rees, chief Germany economist at UniCredit in Munich.

Rees said the average wage increase in Germany would be about 4.25 percent this year.

Ver.di called the strike after months of negotiations failed to produce a result. It began Monday and caused a few flight cancellations, but by Thursday had gathered enough steam to disrupt routes between Germany and the United States, Canada, India and Dubai.

UFO, the union that says it represents most flight attendants, refused to accept the agreement, but its rejection of the new contract with Ver.di does not mean a continuation of the strike. Its contract runs through the end of the year, and negotiations will probably only begin in early 2009.

Originally published by The New York Times Media Group.

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