Pay strike grounds 40 percent of Lufthansa flights

People look at a departure board during a five-hour warning strike by employees of German air carrier Lufthansa, following a pay dispute, represented by German united services union Ver.di at the Fraport airport in Frankfurt March 21, 2013.

FRANKFURT (Reuters) - Lufthansa (LHAG.DE) canceled close to 40 percent of its flights on Thursday as staff went on strike on the eve of wage talks with the German airline, which is trying to cut costs to compete with Middle East and low-cost carriers.

The strike, announced by labor union Verdi on Wednesday, left exasperated passengers stranded as they waited in long lines snaking through Frankfurt airport's Terminal 1, the home of Lufthansa.

"Once a year, I fly to Germany around this time of year. Last year I got stuck in a strike, and now it's happening again," passenger Markus Friedrich said, adding not much remained of the "German efficiency" for which his home country is known.

A group of Japanese teenagers slept on the ground in a corner of the building, kept company by piles of suitcases waiting for pickup. The strike was to end mid-morning, but caused delays and almost 700 cancellations throughout the day.

Efforts by big European airlines such as Lufthansa and Air France-KLM (AIRF.PA) to shrink costs in the face of soaring jet fuel prices and fierce competition from Middle Eastern airlines and low-cost carriers have fanned tensions with workers.

Verdi is demanding a 5.2 percent pay rise for 33,000 cabin crew and ground staff at Lufthansa Cargo, Lufthansa Technik, Lufthansa Systems, catering unit LSG Sky Chefs and ground crews. It also wants a commitment by Lufthansa to safeguard jobs.

Lufthansa, Europe's biggest airline by revenue, wants to freeze pay and get staff to work an hour more each week to help it to remain competitive.

It is cutting 3,500 jobs, revamping low-cost carrier Germanwings and bundling procurement for its airlines as it seeks to cut costs and improve earnings.

Last year, Lufthansa agreed to a mediated deal to raise cabin crew pay almost 4 percent, adding 33 million euros to Lufthansa's costs, after a series of strikes forced it to cancel more than 1,000 flights.

Staff costs accounted for just over a fifth of its overall operating expenses last year. That compares with a 30 percent share at Air France but budget airlines like Ryanair (RYA.I) and easyJet (EZJ.L) have a much lower cost base, with a comparable figure closer to 10 percent, allowing them to undercut legacy carriers on price.

Lufthansa - which in the past has said a strike wiping out most of its traffic could cost it 25 million euros a day - has canceled most of Thursday's scheduled domestic and European flights but aimed to get most intercontinental flights away. (Additional reporting by Maria Sheahan; Editing by Jon Boyle)