* Warns on Japanese yen and Indian rupee weakness
* Growth slows from year-earlier quarter
* Pins hopes on radical restructuring programme
* Cuts 2013 cargo outlook
* Shares fall 3.3 percent vs flat German blue-chip index
By Marilyn Gerlach
FRANKFURT, Oct 31 (Reuters) - Lufthansa warned that weakness in Asian currencies would weigh on revenue growth at its passenger airline business this year and that a grindingly slow market recovery was set to dent profit at its cargo unit.
The German flag carrier said the weak Japanese yen and Indian rupee in particular weighed on third-quarter revenues at the passenger division, its biggest business.
Lufthansa shares dropped 3.3 percent, underperforming a flat blue-chip DAX index.
"The Passenger Airline Group is now forecasting for 2013 a revenue on par with previous year," it said on Thursday. The previous forecast had been for a moderate increase in revenue.
Lufthansa, however, stuck to a stronger operating profit outlook at the passenger division, pinning its hopes on its SCORE restructuring programme, which helped cut costs by 0.9 percent over the last nine months when sales growth was flat.
Other European airlines such as Ryanair and Finnair have trimmed profit expectations, citing lower demand and the impact of volatile exchange rates, while Air France-KLM said the sharp rise in the euro against the dollar had weighed on quarterly revenue.
The German carrier said that while advance bookings were slightly up on the year in terms of volumes, the negative trend in exchange rates would persist.
Lufthansa is in its second year of a radical restructuring programme, aiming to boost operating profit to 2.3 billion euros, up 1.5 billion from 2011. The revamp includes 3,500 job cuts, the expansion of discount unit Germanwings, as well as outsourcing and procurement bundling.
CAUTIOUS ON CARGO
Lufthansa Cargo, where nine-month operating profit dropped 35 percent to 43 million euros, will see earnings fall again, despite early signs of market recovery for the fourth quarter.
"Given market developments in the year to date, the company no longer expects to be able to match last year's result. Lufthansa Cargo now expects to close the year 2013 with a result in the high double-digit million euro range," it said.
It had previously estimated this year's cargo profit would be higher than last year's 104 million euros.
Air France said low growth and high oil prices meant medium-haul and cargo activities will see a "significant reduction" in losses in 2014, without enabling them to break even as first hoped.
Lufthansa Finance director Simone Menne told reporters that while a cargo upswing was absent in January to September, there are signs now that cargo's pre-Christmas business had started earlier than last year.
"We are seeing positive signs" in the cargo business in general coming mainly from China and North America, she said.
Analyst Donal O'Neill of Goodbody Research said the revenue development was "a little disappointing" but understandable given the exchange rate movements.
"In terms of Cargo, we welcome comments that there is a pick-up coming in Q4, but we are somewhat sceptical about how sustainable that is through to FY14," he said.
Lufthansa's average yield - a measure of pricing - tumbled 8.2 percent in its Asia-Pacific division, where the airline has 155 flights weekly. Out of that, 18 percent are to Japan, 20 percent to China and 30 percent to India.
The yen has fallen about 33 percent against the euro since late last year, while the Indian rupee has fallen by about 24 percent year-on-year as of end-September.