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* Mediation does not include plans for budget services
* CEO repeats 2015 profit guidance
* Shares rise 2 pct
* Shareholders question low-cost expansion (Adds shareholder comments, CEO responses)
HAMBURG, April 29 (Reuters) - Lufthansa will offerpilots mediation on a wide range of outstanding pay issues, thecompany said on Wednesday, as it seeks to end a long-runningdispute over pay and expansion of budget services that hasresulted in dozens of costly strikes.
Chief Executive Carsten Spohr also reiterated Lufthansa'soperating profit target of more than 1.5 billion euros ($1.6billion) this year, boosting the company's shares by 2 percentto be the top gainer on the DAX index.
"We are reaching out," Spohr told shareholders at thecompany's annual general meeting, which began with a minute'ssilence for the victims of the Germanwings plane crash at theend of March.
"The crash has changed us and the scars it has left on ourcompany will remain for ever," he added.
Pilots' union Vereinigung Cockpit has held 15 strikes sincelast April, costing the company more than 200 million euros inlost operating profit in 2014.
Spohr said that strikes in February and March had resultedin 42 million euros of lost profit in the first quarter and werelikely to cost 58 million euros in second-quarter bookings.
He also said that the market environment remainschallenging.
"It has not got any easier after the first quarter," hesaid, adding that the group had decided to delay investment in anew cargo centre at its Frankfurt hub by at least two years asit tries to protect its credit rating.
RATINGS HOPE
Spohr said discussions with the ratings agencies led him tobelieve that a downgrade is not on the cards.
Lufthansa's new mediation offer does not include its changesto its planned expansion of low-cost services, as originallyrequested by the pilots.
The union said it needed to wait to see the full offerbefore commenting in detail.
Shareholders at the meeting praised Spohr for his handlingof the crash but questioned the logic of expanding low-costoperations and introducing another brand, Eurowings.
"We should focus on areas where we can be strong and offer apremium product," said Markus Neumann from SdK, which representsthe interests of small shareholders.
In response, Spohr said that Lufthansa needed Eurowings,with 20 percent lower costs than budget operation Germanwings,to keep pace with rivals such as Ryanair and easyJet and ensure short-haul traffic to its hubs in Frankfurtand Munich, from where it operates profitable long-haul flights.($1 = 0.9093 euros) (Reporting by Victoria Bryan and Peter Maushagen; Editing byMaria Sheahan and David Goodman)
