German airline Lufthansa is to launch cost cuts to save €1 billion per year from 2011.

'We confirm' a report earlier in the day by the business daily Handelsblatt which said the plan, dubbed 'Climb 2011', would focus on passenger transport activities, spokeswoman for the airline told AFP.

'Our passenger costs must fall,' and details will be released in the coming weeks, she added.

A letter sent by Lufthansa chief executive Christoph Franz to the airline's staff warned that 'air traffic is mired in the worst crisis in its history'.

After posting a first-quarter loss, Lufthansa's first-half results 'will show that this negative trend is continuing,' he added.

'Unless market conditions change, our losses will increase significantly in the coming year owing especially to the rise in fuel prices,' Franz said.

Last month, the carrier said slumping passenger and freight traffic would force it to take additional measures to avoid posting a full year loss.

Lufthansa is also trying to take over two European carriers at the moment, Austrian Airlines and the Britain's BMI.

The bid for Austrian Airlines has become less certain however, because Lufthansa has failed to address competition concerns expressed by the European Commission, which must approve the deal.