Deutsche Lufthansa AG (LHA.XE) became the latest airline to pass its woes on to its shareholders as it scrapped its dividend for 2012, underscoring the long-running crisis faced by the region's flag carriers.

The move, which was announced late on Tuesday, forms part of an existing cost-saving plan aimed at ensuring the German airline can upgrade its fleet without putting its credit-worthiness in jeopardy by taking on extra debt, with its profitability under pressure. It triggered a slide in the company's share price on Wednesday.

Europe's biggest airline by passenger numbers, Lufthansa has a borderline investment-grade rating from Standard & Poor's--rare among publicly owned national airlines.

Its cost-cutting program, aimed at saving 1.5 billion euros ($2.01 billion) over the next three years, has involved the elimination of thousands of jobs and last year provoked strikes by staff.

Lufthansa's woes are far from unique. Management at Iberia, the Spanish airline owned by British Airways parent International Consolidated Airlines Group SA (IAG.LN), have faced more than a year of sporadic strikes as it seeks to cut thousands of jobs and agree on new labor deals in a bid to survive. Similar measures are under way at Air France-KLM (AF.FR), which last paid a dividend on its 2010 results, and perennially unprofitable Scandinavian carrier SAS A/B (SAS.SK).

National airlines, which run short-haul networks to feed traffic to their long-distance flights, are struggling with high fuel prices and intense competition from discount carriers such as Ryanair Holdings PLC (RYA.DB) and easyJet PLC (EZJ.LN).

Experts say there is always tension in the airline industry between the interests of shareholders and creditors because the business is highly cyclical and capital intensive.

"The industry doesn't lend itself to dividend plays because of high volatility," said Adrian Yanoshik, an analyst at Barclays Capital. "Lufthansa is one of the very few legacy airlines to make regular dividends at all."

Some investors said the disappointment should be short-lived because the airline has its eyes on long-term returns, which depend crucially on the airline flying more fuel-efficient aircraft in the future given the low likelihood that fuel prices will fall.

"We have previously called for a suspension of dividend payments, because a payout of EUR0.25 per share is little more than a symbolic shareholder return," said Michael Gierse, a fund manager at Union Investment, the fund-management unit of Germany's cooperative banks. "For the first time in the company's history, aircraft are being grounded instead of flying them to cover the fixed costs. This requires adjustments in all areas and consequently shareholders also have to "suffer'," said Mr. Gierse. Union Investment holds around 0.5% of Lufthansa shares.

Lufthansa said it plans to place orders for eight new long-haul planes as well as 100 short- and medium-haul jets, increasing the company's order book to 239 aircraft, due for delivery through 2025 and with a total list price of some EUR23 billion.

Lufthansa paid out EUR114.5 million in dividends out of its 2011 earnings, down from EUR274.8 million the year before and a fraction of the EUR572.4 billion paid out in 2007. The airline paid no dividend for 2009.

Its smaller rivals appear more generous. U.K.-based easyJet sharply increased its dividend for 2012, while Irish flag carrier Aer Lingus PLC (EIL1.DB) raised its payment by a third. Finland's Finnair Oyj (FIA1S.HE) surprised investors by proposing to resume its dividend due to the benefits of recent cost-cutting measures.

Write to Jan Hromadko at jan.hromadko@dowjones.com and Marietta Cauchi at marietta.cuachi@dowjones.com

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