The plan, dubbed "Climb 2011," was revealed in a report carried by the business daily Handelsblatt which said that it would focus on passenger transport activities which have slumped amid the global economic downturn.

"Our passenger costs must fall," Lufthansa spokesperson Claudia Lange said in a statement, adding that details would be released in the coming weeks.

Lufthansa staff were warned in a letter sent by the airline's new chief executive Christoph Franz that higher fuel costs and falling passenger numbers posed a serious threat. "This situation is forcing us to act," Franz wrote in the letter. "Air traffic is mired in the worst crisis in its history," and the German carrier expected it to last longer than previously anticipated, he added.

The airline would reappraise all its operations, including "structures, projects and processes," the new chief executive vowed.

After posting a first-quarter loss, Lufthansa's first-half results "will show that this negative trend is continuing," Franz said. "Unless market conditions change, our losses will increase significantly in the coming year owing especially to the rise in fuel prices.

"We must now make ever more determined efforts to counteract the trend," he stressed, adding: "We have no other alternative but to resort to painful measures."

Analysts have expressed doubts about whether Lufthansa can reach its cost-cutting target citing strong resistance from trade unions as one barrier. The Cockpit union which represents pilots has already objected to the airline's cost-savings plans.

In mid-June, the carrier said slumping passenger and freight traffic would force it to take additional measures to avoid posting a full year loss. Analysts took this to mean job losses with forecasts predicting around 20 percent of the airline's administrative passenger division being cut in the medium term.

The news of the cost-cutting plans comes as Lufthansa continues its effort to take over two European carriers, Austrian Airlines and the Britain's BMI.

New proposals for Austrian takeover with the EU

Meanwhile, Lufthansa has sent its new proposals for a planned takeover of Austrian Airlines to the European Commission which now consider the proposed acquisition.

The commission, which has launched a probe and demanded reassurances the deal would not distort competition, said in a statement it "will study the offer carefully but cannot make any further comment at this stage."

Austrian Finance Minister Josef Proell told Austrian news agency APA on Thursday that an offer was on the table which would "get things moving".

The European Commission fears the takeover could lead to higher prices for passengers or fewer flights on some routes and has demanded Lufthansa make concessions to protect European air travellers.

It launched an inquiry at the start of the month into the proposed link-up and has until November 6 to make a decision.

But Lufthansa said its takeover offer, which must be approved by Brussels, would only stand until July 31.

Brussels said on Friday it had not received anything to address competition concerns and "without concrete proposals from Lufthansa within the next few hours it would be impossible" to meet that deadline.

Doubts raised about Lufthansa's desire

Concessions already made have been deemed insufficient by the commission, which expressed scepticism on Monday that the German airliner was still interested in the venture.

Brussels is demanding that AUA surrender key take-off and landing slots for services between Vienna and Frankfurt, Munich, Stuttgart, Cologne, Zurich, Geneva and Brussels.

A European Commission spokesman dismissed as "rubbish" Austrian press reports that it had approached Air France-KLM to see if it would be interested in taking over Austrian Airlines if the Lufthansa offer fell through.

Lufthansa signed a deal last year to acquire a 41.6-percent stake in AUA from the Austrian state holding company OeIAG for a symbolic one euro cent per share -- or just over 366,000 euros in all.

One of the conditions was an agreement that the Austrian state would absorb 500 million euros -- or just over a third -- of AUA's debts.

But those terms have enraged rival airlines, such as Air France-KLM, which had also sought to buy AUA, as well as other airlines such as British Airways and Irish low-fares carrier Ryanair.

nda/AFP/dpa/Reuters

Editor: Chuck Penfold