C Citigroup Inc

LONDON—Deutsche Lufthansa AG said it may further cut capacity and restructure its air-cargo unit to offset lower prices even as it posted a narrower first quarter-operating loss, a closely watched measure of its performance.

Lufthansa is following the lead of British Airways-parent International Consolidated Airlines Group SA among European airlines that are curtailing growth plans and seeking new ways to reduce costs to deliver on promises of improving earnings. ​

Germany's largest airline said on Tuesday its loss before interest and taxes narrowed to €53 million euro ($61 million) in the three months to end March compared with the same period last year on a 0.8% decline in revenue to €6.9 billion.

The carrier swung to a €8 million first-quarter net loss from a €425 million profit the same period last year when it benefited from a €500 million one-time gain from the earlier-than-expected sale of shares in JetBlue AirwaysCorp.

Lufthansa had made "a solid start" to the year, said Chief Financial Officer Simone Menne.

Despite "significant pricing pressure," the airline said is maintaining its full-year guidance for a slight improvement in adjusted earnings beyond the €1.8 billion reported in 2015.

​Weakness in some markets is forcing European airline's to dig deeper to make earnings promises to investors despite the boon of lower fuel costs as oil prices have fallen steeply.

IAG, which also owns Spain's Iberia, budget unit Vueling and Irish carrier Aer Lingus, has reduced capacity because of weak bookings, citing the impact of the terrorist attacks in Brussels that killed at least 32 people when the city's airport and a subway stop were hit by Islamic State suicide bombers. IAG also said it was accelerating cost-cutting measures as it affirmed its full-year target for higher earnings. ​

​Lufthansa said fares were weak particularly to South America, with bookings from Chinese and Japanese travel groups also down. The airline said it didn't expect pricing pressure to ease, hence the importance of controlling costs.

"The substantial unit cost reduction at our passenger airlines has more than made up for the pricing declines," Ms. Menne said. Lufthansa had reduced expenses beyond the windfall gains from lower fuel costs. Excluding fuel benefits, costs were 4% lower than in the year-prior.

"This marks an important change in trend in our unit cost development," she said. Ms. Menne said the airline was sticking to its goal of cutting nonfuel costs even as it benefits from a EUR4.8 billion reduction in fuel costs amid the slump in oil prices.

Lufthansa also said it has cut full-year capacity growth to 6% from 6.6% because of the weakness in bookings and would consider further retrenchment, she said.

Ms. Menne said the Brussels attack didn't have a meaningful financial impact on the German airline, though passengers were making bookings closer to their departure date.

Still, Lufthansa, which had been considering buying the 55% stake in Brussels Airlines parent it doesn't already own, last week said the decision had been delayed until the summer.

In the first quarter, the carrier benefited from an improved operating performance from its main Lufthansa airline and Austian Airlines, partly offset by a decline in earnings at Swiss Air Lines and Eurowings, its budget carrier.

Lufthansa's cargo business remained under pressure from weak prices, with first-quarter revenue down 22%, partly the result of "sizable overcapacity particularly on trans-Atlantic routes and low demand," the airline said.

Ms. Menne said the unit may have to be reorganized to offset the trend, without providing details.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

May 03, 2016 02:55 ET (06:55 GMT)

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