The economic crisis and an exodus by premium seat passengers at Lufthansa all but wiped out first-half operating profit.
The German airline said core earnings fell to EUR8 million euros (USD$11.3 million) from a year-earlier profit of EUR677 million. The flagship carrier said it would focus on achieving an operating profit for the full year.
"The persistent economic crisis and its effects on demand, particularly in the premium segment, placed a considerable burden on results," the airline said.
Publishing key earnings a day ahead of schedule, Lufthansa said the future development of demand and fuel prices were considerable risks to it reaching its goal.
Since mid-January, oil prices have more than doubled to nearly USD$65 a barrel, while demand for air travel has failed to recover. Industry body IATA said it expects the world's airlines to lose USD$9 billion this year.
To safeguard its profitability in the downturn, Lufthansa has said it plans to cut EUR1 billion of annual costs by 2011. It will cut several hundred jobs at its passenger airlines business and said it could defer some aircraft orders.
The cost cuts will also help offset expenses for a raft of acquisitions Lufthansa agreed to last year, including Brussels Airways, UK carrier bmi and Austrian Airlines. The latter deal is close to receiving European Union approval.
Rival British Airways is also under pressure to cut costs, and has unveiled plans to raise about USD$1 billion through a combination of bondholder debt and bank credit.
Over the past year, Lufthansa has traded at up to 16.9 times its 12 month forward earnings, compared with highs of only 10.4 and 12.4 for Air France-KLM and British Airways, respectively. All three airlines are expected to post 2009 losses at the bottom line.